Iowa Capital Complex Master Plan, April 19, 2000

This document provides design and stratagies for the capital complex. Also for future physical development of the complex.

Testing financing constraints on firm investment using variable capital

We consider a dynamic multifactor model of investment with financing imperfections,adjustment costs and fixed and variable capital. We use the model to derive a test offinancing constraints based on a reduced form variable capital equation. Simulation resultsshow that this test correctly identifies financially constrained firms even when the estimationof firms investment opportunities is very noisy. In addition, the test is well specified inthe presence of both concave and convex adjustment costs of fixed capital. We confirmempirically the validity of this test on a sample of small Italian manufacturing companies.

Educação e Capital Social para o Desenvolvimento Sustentável das Comunidades Piscatórias da Ilha de Santiago (Cabo Verde)

As comunidades piscatórias da ilha de Santiago são as mais pobres de Cabo Verde, e as pessoas que aí vivem têm vindo a deparar-se com problemas socioeconómicos, com reflexos negativos em termos de pressão sobre os recursos naturais, do saneamento do meio e do exercício da cidadania, sendo este uma das vias que poderia contribuir para a resolução da problemática do desenvolvimento dessas comunidades. O presente trabalho de investigação tem por objetivo analisar o nível da educação e do capital social nas comunidades piscatórias da ilha de Santiago em Cabo Verde, evidenciar o papel da educação na formação e no reforço do nível de capital social nessas comunidades e analisar a importância, deste último, para o desenvolvimento sustentável das mesmas. Para a realização deste trabalho foi utilizada uma metodologia com enfoque quantitativo e exploratório. Para além do estudo documental, para a obtenção da informação sobre a educação, o capital social e o desenvolvimento, os dados da parte prática do trabalho foram obtidos por meio de inquérito por questionário aplicado às 340 (trezentas e quarentas) pessoas, de ambos os sexos, das comunidades piscatórias da ilha de Santiago, escolhidas aleatoriamente. Os resultados do estudo foram apresentados com base em estatísticas descritivas e fez-se testes estatísticos para verificar a dependência/ independência entre as variáveis do estudo e as hipóteses. Ainda, a discussão dos resultados de estudo foi feita tendo em consideração o suporte teórico, a esse respeito, e que consta do trabalho. Da análise e discussão dos resultados do trabalho, conclui-se que, nas comunidades piscatórias da ilha de Santiago, não há correlação direta entre o nível de educação e o de capital social, sendo este mais elevado para os respondentes que não sabem ler e nem escrever e para os que não estão a frequentar estudos, e o Índice de Capital Social (ICS) das pessoas é suportado pela tradição. Ainda, o capital social dos inquiridos a nível da ilha de Santiago é de 0,76 e, sendo assim, acima da média estabelecida (0,50), e aproveitado pelas pessoas na vida quotidiana, mas não se projeta para as iniciativas sem efeitos imediatos e, em consequência, pouco tem vindo a contribuir para o desenvolvimento dessas comunidades.

Satisfaction in choice as a function of the number of alternatives: When "goods satiate" but "bads escalate"

Whereas people are typically thought to be better off with more choices, studiesshow that they often prefer to choose from small as opposed to large sets of alternatives.We propose that satisfaction from choice is an inverted U-shaped function of thenumber of alternatives. This proposition is derived theoretically by considering thebenefits and costs of different numbers of alternatives and is supported by fourexperimental studies. We also manipulate the perceptual costs of information processingand demonstrate how this affects the resulting satisfaction function. We furtherindicate that satisfaction when choosing from a given set is diminished if people aremade aware of the existence of other choice sets. The role of individual differences insatisfaction from choice is documented by noting effects due to gender and culture. Weconclude by emphasizing the need to have an explicit rationale for knowing how muchchoice is enough.

Capital formation in machinery in Latin America, 1890-1930

Investment in machinery is a key aspect in the analysis of long-term economic growth during the era of the spread of industrialisation. But, historiography has only revealed what the pace of capital accumulation was in a few Latin American economies. This article offers continuous (annual) and consistent series on the magnitude of this investment in all of the Latin American countries for the period at the height of the first globalisation, 1890-1930. The paper gives special attention to comparative analysis, showing the differences that exist at the heart of the Latin American community, in the levels of capital formation in machinery as well as in the national development of this over time. The differences in the levels appear very indicative of the unequal degree of development reached by these economies. This article puts to test the hypothesis of intraregional divergence, obtaining the tentative result that there was divergence until 1913, but that there was convergence from 1914-1930.

Financial integration, productivity and capital accumulation

Understanding the mechanism through which financial globalization affect economic performance is crucial for evaluating the costs and benefits of opening financial markets. This paper is a first attempt at disentangling the effects of financial integration on the two main determinants of economic performance: productivity (TFP)and investments. I provide empirical evidence from a sample of 93 countries observed between 1975 and 1999. The results suggest that financial integration has a positive direct effect on productivity, while it spurs capital accumulation only with some delay and indirectly, since capital follows the rise in productivity. I control for indirect effects of financial globalization through banking crises. Such episodes depress both investments and TFP, though they are triggered by financial integration only to a minor extent. The paper also provides a discussion of a simple model on the effects of financial integration, and shows additional empirical evidence supporting it.

Economic booms, trade deficits and economic policy

Many economic booms have been accompanied by realexchange rate appreciations, large trade defcits -whichhave sometimes persisted after the return to the initialexchange rate parity- and a deteriorating traded sector.Those circumstances have typically raised the questionof the de-sirability of some stabilization policy. We show that the dynamics induced by an expectedproductivity shock in an economy where the capital stockis non-mobile across sectors, match those circumstances.Furthermore, we obtain that credit market imperfectionstend to exacerbate trade deficits, and to cause aninefficient capacity reduction in the traded sector.Some stabilization policies are explored.

Human capital distribution, growth and convergence

This paper studies the dynamic relationship between distribution and endogenous growth in an overlapping generations model with accumulation of human and physical capital. It is shown how human capital can determine a relationship between per capita growth rates and inequality in the distribution of income. Family background effects and spillovers in the transmission of human capital generate a dynamics in which aggregate variables depend not only on the stock, but also on the distribution of human capital. The evolution of this distribution over time is then characterized under different assumptions on private returns and the form of the externality in the technology for humancapital. Conditions for existence, uniqueness and stability of a constant growth equilibrium with a stationary distribution are derived. Increasing returns, idiosyncratic abilities and the possibility of poverty traps are explicitely characterized in a closed form solution of the equilibrium dynamics, showing the role played by technology and preferences parameters.

Bank versus venture capital

Why do some start-up firms raise funds from banks andothers from venture capitalists? To answer this question,I develop a model of start-up financing when intellectualproperty rights are not well protected. The upside of VCfinancing is that the VC understands the business betterthan a bank. The downside, however, is that the VC maysteal the idea and use it himself. The results of themodel are consistent with empirical regularities onstart-up financing. The model implies that thecharacteristics of the firms financing from venturecapitalists are low-collateral, high-growth and high-profitability. The model also suggests that thetighter protection of intellectual property rightscontributes to the recent dramatic growth of the USventure capital industry.

Giffen goods and market making

This paper shows that information effects per se are not responsible forthe Giffen goods anomaly affecting competitive traders demands in multi-asset, noisy rational expectations equilibrium models. The role thatinformation plays in traders strategies also matters. In a market withrisk averse, uninformed traders, informed agents havea dual motive for trading: speculation and market making. Whilespeculation entails using prices to assess the effect of private signalerror terms, market making requires employing them to disentangle noisetraders effects in traders aggregate orders. In a correlated environment,this complicates a trader s signal-extraction problem and maygenerate upward-sloping demand curves. Assuming either (i) that competitive,risk neutral market makers price the assets, or that (ii) the risktolerance coefficient of uninformed traders grows without bound, removesthe market making component from informed traders demands, rendering themwell behaved in prices.

Technological change and the wealth of nations

We discuss a unified theory of directed technological change and technologyadoption that can shed light on the causes of persistent productivity differencesacross countries. In our model, new technologies are designed in advanced countries and diffuse endogenously to less developed countries. Our framework is richenough to highlight three broad reasons for productivity differences: inappropriatetechnologies, policy-induced barriers to technology adoption, and within-countrymisallocations across sectors due to policy distortions. We also discuss the effectsof two aspects of globalization, trade in goods and migration, on the wealth ofnations through their impact on the direction of technical progress. By doing so,we illustrate some of the equalizing and unequalizing forces of globalization.

Firm investment in imperfect capital markets: A structural estimation

We set up a dynamic model of firm investment in which liquidity constraintsenter explicity into the firm's maximization problem. The optimal policyrules are incorporated into a maximum likelihood procedure which estimatesthe structural parameters of the model. Investment is positively related tothe firm's internal financial position when the firm is relatively poor. This relationship disappears for wealthy firms, which can reach theirdesired level of investment. Borrowing is an increasing function of financial position for poor firms. This relationship is reversed as a firm's financial position improves, and large firms hold little debt.Liquidity constrained firms may be unused credits lines and the capacity toinvest further if they desire. However the fear that liquidity constraintswill become binding in the future induces them to invest only when internalresources increase.We estimate the structural parameters of the model and use them to quantifythe importance of liquidity constraints on firms' investment. We find thatliquidity constraints matter significantly for the investment decisions of firms. If firms can finance investment by issuing fresh equity, rather than with internal funds or debt, average capital stock is almost 35% higher overa period of 20 years. Transitory shocks to internal funds have a sustained effect on the capital stock. This effect lasts for several periods and ismore persistent for small firms than for large firms. A 10% negative shock to firm fundamentals reduces the capital stock of firms which face liquidityconstraints by almost 8% over a period as opposed to only 3.5% for firms which do not face these constraints.

Bubbles and capital flows

This paper presents a stylized model of international trade and asset price bubbles. Its central insight is that bubbles tend to appear and expand in countries where productivity is low relative to the rest of the world. These bubbles absorb local savings, eliminating inefficient investments and liberating resources that are in part used to invest in high productivity countries. Through this channel, bubbles act as a substitute for international capital flows, improving the international allocation of investment and reducing rate-of-return differentials across countries. This view of asset price bubbles could eventually provide a simple account of some real world phenomenae that have been difficult to model before, such as the recurrence and depth of financial crises or their puzzling tendency to propagate across countries.

Effects of uncertain lifetime and annuity insurance on capital accumulation and growth

This paper studies the effects of uncertain lifetime on capitalaccumulation and growth and also the sensitivity of thoseeffects to the existence of a perfect annuities market. Themodel is an overlapping generations model with uncertainlifetimes. The technology is convex and such that the marginalproduct of capital is bounded away from zero. A contribution ofthis paper is to show that the existence of accidental bequestsmay lead the economy to an equilibrium that exhibits asymptoticgrowth, which is impossible in an economy with a perfect annuitiesmarket or with certain lifetimes. This paper also shows that ifindividuals face a positive probability of surviving in everyperiod, they may be willing to save at any age. This effect ofuncertain lifetime on savings may also lead the economy to anequilibrium exhibiting asymptotic growth even if there exists aperfect annuities market.