The determinants of capital intensity in Japan and the US

Abstract

We estimate the determinants of capital intensity in Japan and the US, characterized by striking different paths. We augment an otherwise standard Constant Elasticity of Substitution (CES) model with demand-side considerations, which we find especially relevant in the US. In this augmented setting, the elasticity of substitution between capital and labor is placed around 0.85 in Japan, and 0.30 in the US. We also find evidence of biased technical change, which is capital-saving in Japan but labor-saving in the US. These differences help us explain the diverse experience in the capital deepening process of these economies, and lead us to conclude that demand-side drivers may also be relevant to account for different growth experiences. A close look at the nature of technological change is also needed before designing one-size-fits-all industrial, economic growth, and/or labor market policies.JEL Classification: E22, E24, O33.

Heterogeneity analysis of the effects of technology progress on carbon intensity in China

“…The capital-labor ratio in the eastern region is much higher than the other two regions (Figure 7). Note: For statistical consistency, the whole country's ES is calculated by aggregating the related data of all provinces data (except Tibet) In theory, capital deepening means the substitution of capital for labor, which would promote technology progress and industrial upgrading as a result of higher capital productivity relative to labor productivity (Judzik and Sala, 2015). Therefore, capital deepening helps to improve capital efficiency, increase the ratio of outputs to inputs, and thereby enhance the impact of technology progress on CI.…”