Money- Physical Capital Nexus: How Valid Is McKinnon Complementarity Hypothesis In Turkish Economy?

I am grateful to Abe, Fry, Min, Vongvipanond, and Yu (hereafter re¬ferred to as AFMVY) [1] for obliging me to reconsider my article [2] on the demand for money in Pakistan. Upon careful examination, I find that the AFMVY results are, in parts, misleading and that, on the whole, they add very little to those provided in my study. Nevertheless, the present exercise as well as the one by AFMVY is useful in that it furnishes us with an opportunity to view some of the fundamental problems involved in an empi¬rical analysis of the demand for money function in Pakistan. Based on their elaborate critique, AFMVY reformulate the two hypo¬theses—the substitution hypothesis and the complementarity hypothesis— underlying my study and provide us with some alternative estimates of the demand for money in Pakistan. Briefly their results, like those in my study, indicate that income and interest rates are important in deter¬mining the demand for money. However, unlike my results, they also suggest that the price variable is a highly significant determinant of the money demand function. Furthermore, while I found only a weak support for the complementarity between money demand and physical capital, the results obtained by AFMVY appear to yield a strong support for that rela¬tionship.1 The difference in results is only a natural consequence of alter¬native specifications of the theory and, therefore, I propose to devote most of this reply to the criticisms raised by AFMVY and the resulting reformulation of the two mypotheses.

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The endogeneity of the natural rate of growth: An application to Turkey

Panoeconomicus ◽

10.2298/pan1004447a ◽

2010 ◽

Vol 57 (4) ◽

pp. 447-469

Author(s):

Senay Acikgoz ◽

Merter Mert

Keyword(s):

Capital Stock ◽

Labour Force ◽

Physical Capital ◽

Test Results ◽

Natural Rate ◽

Causality Test ◽

Rate Of Growth ◽

Production Factors ◽

Long Run ◽

Turkish Economy

The purpose of this paper is to examine the sensitivity of the Turkish economy?s natural rate of growth to the actual rate of growth, covering the period 1980-2008. To determine the reason why the natural rate of growth is endogenous, the long-run and the causality relationships between real gross domestic product and each of the production factors (labour force and physical capital stock) are investigated with the bounds test. The natural rate of growth for the Turkish economy is found to be at 4.97 percent and it increases approximately 35.6 percent in the boom periods; indicating endogeneity. However, according to the causality test results, the endogeneity of the natural rate of growth may be attributed to the total factor productivity rather than the labour force and physical capital stock. This result is important and the debate on this subject may lead to further studies.

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A Test of the McKinnon’s Complementarity Hypothesis between Money and Physical Capital in the Case of Kyrgyzstan

International Conference on Eurasian Economies 2011 ◽

10.36880/c02.00330 ◽

2011 ◽

Author(s):

Harun Doğan

Keyword(s):

Economic Growth ◽

Developing Countries ◽

Soviet Union ◽

Financial Liberalization ◽

Time Series Data ◽

Developing Economies ◽

Physical Capital ◽

Series Data ◽

Real Rate ◽

Complementarity Hypothesis

The main purpose of this study is to empirically investigate the validity of McKinnon’s complementarity hypothesis on economic growth of Kyrgyzstan for the period of 1996–2009. McKinnon’s (1973) central thesis argues poorly functioning financial systems in developing countries may effect investment quality and growth rate of the economy in negative direction. McKinnon’s (1973) complementary hypothesis predicts that money and investment are complementary, to the contrast neoclassical and Keynesian theory, due to a self-financed investment in developing economies. In other words, according to McKinnon, financial liberalization should generate positive impacts on growth as consequence of positive relation between money and physical capital in developing countries after financial liberalization. The empirical researches conducted on complementarity hypothesis have found mixed results on the link between money and physical capital. However, empirical analysis of Kyrgyzstan’s economy is very important because of its peculiarities, it has both a trancition and developing economy, which in case of the McKinnon’s complementarity hypothesis is very essential. Thus, Kyrgyzstan, as many developing countries, have undertaken financial liberalization programs during the past twenty years after collapse of Soviet Union. Therefore, the study analyzes long run and short run association among the real rate of interest on deposits, private investments, economic growth, and domestic savings behavior in Kyrgyzstan, using annual time series data for 1996-2009 with techniques of ARDL Cointegration Error Correction Model. The results does not support the McKinnon’s complementarity hypothesis between money and physical capital on the period for 1996-2009 in the Kyrgyzstan’s Economy.

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Physical capital stock, technological upgrading and modernisation in Hungary

Acta Oeconomica ◽

10.1556/aoecon.55.2005.2.4 ◽

2005 ◽

Vol 55 (2) ◽

pp. 201-221 ◽

Cited By ~ 7

Author(s):

Andrea Szalavetz

Keyword(s):

Capital Accumulation ◽

Physical Capital ◽

Developed Countries ◽

Point Of View ◽

Technology Generation ◽

Development Policies ◽

Specific Factors ◽

Physical Capital Accumulation

This paper discusses the relation between the quality and quantity indicators of physical capital and modernisation. While international academic literature emphasises the role of intangible factors enabling technology generation and absorption rather than that of physical capital accumulation, this paper argues that the quantity and quality of physical capital are important modernisation factors, particularly in the case of small, undercapitalised countries that recently integrated into the world economy. The paper shows that in Hungary, as opposed to developed countries, the technological upgrading of capital assets was not necessarily accompanied by the upgrading of human capital i.e. the thesis of capital skill complementarity did not apply to the first decade of transformation and capital accumulation in Hungary. Finally, the paper shows that there are large differences between the average technological levels of individual industries. The dualism of the Hungarian economy, which is also manifest in terms of differences in the size of individual industries' technological gaps, is a disadvantage from the point of view of competitiveness. The increasing differences in the size of the technological gaps can be explained not only with industry-specific factors, but also with the weakness of technology and regional development policies, as well as with institutional deficiencies.

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