Elasticity Of Investment Research Articles

Trade‐induced sectoral upgrading and upstream financial flows

AbstractThis paper shows that deepening trade integration may have non‐monotonic impacts on the direction of financial flows in a world with heterogeneous financial development. By inducing the more financially developed country (North) to specialize towards the financially constrained, high‐return sectors, trade integration reduces the return to capital in the unconstrained, low‐return sectors, which reverses the upstream financial flows, as predicted by Antras and Caballero (2009, Journal of Political Economy). However, if the cross‐country difference in financial development and the investment elasticity in North are sufficiently large, North may offshore the low‐return sectors and specialize fully in the high‐return sectors. In this case, upstream financial flows may not be dampened or reversed in the long run. My findings offer an alternative perspective of understanding the persistent current account imbalances between emerging Asia and the United States.

Os efeitos da infraestrutura e do investimento público na elasticidade do investimento privado: uma investigação empírica para o Brasil

ABSTRACT This study estimates the determinants of the elasticities of private investment and total investment for the Brazilian economy for the period between 1960 and 2013. It uses a Bayesian model averaging and weighted-average least-squares approach with a flexible accelerator model of investment equation and Kalman filtering techniques. We conclude that the aggregate infrastructure index (taken from the main component analysis) and public investment crowd-in private investment. The results indicate that private investment is constrained by the availability of bank credit. Furthermore, we find that infrastructure stock and public investment are two of the main determinants of the elasticities of private investment. This demonstrates that public investment, mainly in infrastructure, is of great importance in raising the sensitivity of private investment in the Brazilian economy.

Relating exchange rate, interest rate and credit to private investment in Nigeria

The study investigated the link among interest rate, credit, exchange rate and private investment with focus on the Nigerian economy. The sets of data are drawn from the statistical bulletin of the Nigerian Central Bank for the period 1981 to 2016. The ARDL bound test approach showed that the elasticity of private investment to the studied variables thus: 32% and 46% for its own first and second lag respectively; 141% and -131% for the contemporaneous and first lag value of credit respectively; 5% for interest rate with exchange rate showing a non-significant elasticity of 0.01%. The ECM shows that private investment adjusts to the speed and dynamics of interest rate, credit and investment. It is recommended that government in collaboration with the monetary authorities should evolve an interest rate, credit creation policies and exchange rate that work to stimulate investment in particular and growth in general.

Industrial investments and housing prices in China

Explosive housing prices in major cities have created a great deal of new houses that are vacant, which is defined as oversupply. We use the matrix of the direct input coefficients of an input–output table to identify 13 of 36 Chinese industrial sectors as housing-related. We estimate Marginal q values by sector for 2001–2016; sectoral investment is explained by panel estimations based on Marginal q theory. The Marginal q investment elasticities of 13 housing-related industries, the remaining 23 industries, and all industries were 0.2412, 0.8539, and 0.6956 respectively. The housing price Granger explains the producer price index (PPI), and the PPI Granger explains the Marginal q values of the 36 industrial sectors. Overcapacity via overinvestment was evident in all 13 housing-related industrial sectors, including metal and cement, during the period of explosive housing prices.

Foreign Direct Investment Elasticities of Output, Labor, and Wages in Chile: A Simultaneous Equations Approach

We estimate foreign direct investment elasticities of output, of unskilled and skilled labor, and of unskilled and skilled wages for Chile, both at an aggregate level and for eight economic sectors. We use regional data from official Chilean sources ranging from 2012 to 2019 and data from economic sectors in each region for the period 1996–2011. Estimates are based on a simultaneous equation approach, which considers the two-way relationships between FDI and output as well as the relationships between output, labor, and wages stressed by the duality theory of production in economics. The estimations confirm that FDI triggers growth and that FDI follows growth. Due to the positive effects on output, FDI boosts employment creation, particularly of skilled labor. The estimated effects on wages are not significant, either statistically or practically. The output and labor effects of FDI are positive and significant in all economic sectors, but point estimates suggest that they could be larger for the agriculture-forestry-fishing sector. The results indicate that realistic increases in FDI can have substantial output and employment effects in Chile.

Upstream financial flows, intangible investment, and allocative efficiency

The recent decades have witnessed upstream financial flows and rising intangible investment. Given heterogeneous pledgeability, we find that financial inflows have opposite short-run and long-run effects on intangible–tangible investment composition and the efficiency of capital formation. By reducing the investment elasticity along the extensive margin, rising wealth inequality undermines the efficiency gains from financial inflows. Similarly, market frictions and policy distortions that hinder entrepreneurship may also reduce the investment elasticity. Thus, our mechanism offers a new perspective for understanding cross-country differences in intangible–tangible investment composition.

A Note on nonconvex adjustment costs in lumpy investment models: Mean versus variance

AbstractThis paper revisits the canonical assumption of nonconvex capital adjustment costs in lumpy investment models as in Khan and Thomas [(2008) Econometrica 76(2), 395–436], which are assumed to follow a uniform distribution from zero to an upper bound, without distinguishing between the mean and the variance of the distribution. Unlike the usual claim that the upper bound stands for the size (represented by the mean) of a nonconvex cost, I show that in order to generate an empirically consistent interest elasticity of aggregate investment, both a sizable mean and a sizable variance are necessary. The mean governs the importance of the extensive margin in aggregate investment dynamics, while the variance governs how sensitive the extensive margin is to changes in the real interest rate. As a result, both the mean and the variance are quantitatively important for aggregate investment dynamics.

Infrastructure, conventions and private investment: An empirical investigation

This study aims to test the hypotheses that a country's infrastructure deterioration leads to a fall in private investment as well as to a reduction in the private investment elasticities in relation to its determinants such as the real interest rate, real exchange rate, public investment, domestic credit and the infrastructure stock itself. These hypotheses, which are elaborated from the Post Keynesian view, are tested for the period 1985–2013, for 87 countries and two subgroups of low and high per capita income countries, using the estimators dynamic fixed effects, pooled mean group, and cross-sectionally augmented pooled mean group in a heterogeneous dynamic panel. The results highlight the positive impact of infrastructure on private capital formation. They also suggest that the physical deterioration of the infrastructure stock promotes declines in private investment elasticities, mitigating the private investment sensitivity to positive shocks as well as the effectiveness of economic policy in stimulating private investment through changes in its determinants.

Analisis Pengaruh Investasi Dan Jumlah Penduduk Yang Bekerja Terhadap Pertumbuhan Ekonomi Sumatera Barat Tahun 2005-2020

The title of the research is Analysis of the Effect of Investment and Total Working Population on Economic Growth in West Sumatra in 2005 – 2020. This study aims to analyze the direct or indirect effect of the number of working people and investment on economic growth in West Sumatra during the period 2005-2020. The method used in this study is the Ordinary Least Square (OLS) method in seeing the effect of the independent variable on the dependent variable. Here the dependent variable is economic growth, namely the amount of GDP at constant prices in 2010, and the independent variable is investment and the number of working people. Furthermore, to see the causal effect of investment and the number of people working on economic growth, it can be written in the form of a non-linear regression equation. From the analysis results obtained the equation Ln Y = 1 + 2 ln I + 3 ln L+ U . From the regression equation, it can be seen that: 2 is the coefficient of elasticity of investment on economic growth and 3 is the coefficient of elasticity of the working population on economic growth in West Sumatra. the 2019 covid pandemic. In the period after the covid pandemic there was also a positive relationship between labor and investment on the economic growth of the West Sumatra region. However, economic growth has decreased compared to the pre-covid period. During the analysis period, the natural growth of the West Sumatran economy fluctuated with an average GRDP growth of 7.28% per year.

Evaluation of Liquefied Natural Gas as a Ship Fuel for Liner Shipping Using Evolutionary Game Theory

Strict limits on air emissions released by burning fuel of ships have recently been imposed in Emission Control Areas. Retrofitting ships to use Liquefied Natural Gas (LNG) as a ship fuel is one of the methods for liner companies to comply with global regulations. Since the LNG retrofitting investment is expensive, it is likely that liner companies need a more scientific methodology to evaluate the LNG for propulsion of ships. Liner companies are particularly interested in their profits determined by the pricing decision. Based on the evolutionary game theory, this paper develops a mathematical model for the pricing problem with the consideration of market competition, LNG investment, and price elasticity. We also consider several realistic factors, such as the demand sensitivity for LNG effort, to make the proposed methodology meet the realistic demands when more and more liner companies need a revolutionary transformation because of the stricter regulations. Numerical experiments, including a simulated-data case, are performed to validate the proposed methodology. Some managerial insights are concluded according to the computational experiments and sensitivity analysis.

Corporate Taxation and Investment: Evidence from a Context of Frequent Tax Reforms

The paper assesses the role of taxes on investment in Colombian firms. The research takes advantage of the Colombian context of frequent tax reforms, at least one reform every three years, during the period 2005-2014, and a unique panel data set from financial statements and corporation tax returns at the firm level. The effect of corporate taxation on investment is estimated by first determining the impact of taxation on the user cost of capital by computing the marginal effective tax rates at the firm level. Then, we estimate the impact of the cost of capital on investment. Estimations indicate that the corporate income tax elasticity of investment is on average –0.2 for the analyzed period, which is in the lower range when compared to other studies for developed countries

Nonconvex Adjustment Cost in Lumpy Investment Models: Mean versus Variance

This paper revisits the canonical assumption of nonconvex capital adjustment costs in lumpy investment models as in Khan and Thomas (2008), which are assumed to follow a uniform distribution from zero to an upper bound, without distinguishing between the mean and the variance of the distribution. Unlike the usual claim that the upper bound stands for the size (represented by the mean) of a nonconvex cost, I show that in order to generate an empirically consistent interest elasticity of aggregate investment, both a sizable mean and a sizable variance are necessary. The mean governs the importance of the extensive margin in aggregate investment dynamics, while the variance governs how sensitive the extensive margin is to changes in the real interest rate. As a result, both the mean and the variance are quantitatively important for aggregate investment dynamics.

Mispricing and the Elasticity of Quantitative Investment

Mispricing and the Elasticity of Quantitative Investment

Lumpy Investment, Business Cycles, and Stimulus Policy

I study the aggregate implications of micro-level lumpy investment in a model consistent with the empirical dynamics of the real interest rate. The elasticity of aggregate investment with respect to shocks is procyclical because more firms are likely to make an extensive margin investment in expansions than in recessions. Matching the dynamics of the real interest rate is key to generating this result because it disciplines the interest-elasticity of investment and avoids counterfactual behavior of the model that would otherwise eliminate most of the procyclical responsiveness. Therefore, data on interest rates place important discipline in aggregating micro-level investment behavior. (JEL D25, E13, E22, E23, E43, G31, H25)

A Test of the validity of Crowding-out (or- in) hypothesis: A new examination of link between public borrowing and private investment in Emerging Europe

This study seeks to test the existence of the crowding-out (or- in) hypothesis in a sample of 17 Emerging Europe countries divided in two panels. The study employs a panel autoregressive distributed lag (ARDL) model based on three estimators, Mean Group Estimator (MG), Pooled Mean Group (PMG) and Dynamic Fixed Effect (DFE), in order to evaluate the of stability of short run and long run coefficients using consistently compiled public borrowing and private investment data between 2000 and 2019. The empirical findings of the paper generally confirm the existence of a crowding out effect in both long run and short run in European post-transition countries, and in the long run for European transition countries. More specifically, elasticity of private investment with respect to public debt is greater in the European transition countries than in the European post-transition countries. However, the findings on the crowding out (in) effect of government spending and economic growth on private investment are mixed and conflicting in both the long run and the short run. Accordingly, the study recommends that selected countries should reassess their austerity agendas employed for lowering debt levels, and follow new strategies for managing public debt burden.

Does Corporate Investment Respond to the Time-Varying Cost of Capital? Empirical Evidence

AbstractI examine whether the time-varying cost of capital is considered in firms’ capital budgeting decisions. For this test, I measure the conditional cost of equity using individual equity option prices. I find that corporate investment responds negatively to fluctuations in the option-implied cost of equity and the weighted average costs of capital. Furthermore, through decomposing marginal $ q $, I reveal that the cost-of-capital elasticity of empirical investment is almost identical to its productivity elasticity, as theory predicts. These findings suggest that firms’ discount rates are updated accurately in practice despite the failure of conventional frameworks, such as factor-based models, in this regard.

Does Corporate Investment Respond to Time-Varying Risk Premia? Empirical Evidence

I examine whether the time-varying cost of capital is considered in firms' capital budgeting decisions. For this test, I measure the conditional cost of equity, using individual equity option prices. I find that corporate investment responds negatively to fluctuations in the option-implied cost of equity and the weighted average costs of capital. Furthermore, through decomposing marginal $q$, I reveal that the cost-of-capital elasticity of empirical investment is almost identical to its productivity elasticity, as theory predicts. These findings suggest that firms' discount rates are updated accurately in practice despite the failure of conventional frameworks, such as factor-based models, in this regard.

Government financial institutions and capital allocation efficiency in Japan

Abstract This paper uses the industry-level panel data from 1975–2005 and estimates Wurgler's η, the elasticity of industry investment to value-added, for each of Japan's 47 prefectures. We find that Wurgler's η varies considerably across prefectures even though there is no regulatory restriction on inter-regional flow of financial capital. Moreover, exploiting cross-prefecture variation in Wurgler's η, we show that the share of government loans is strongly and negatively correlated with the quality of capital allocation. We also find that this negative correlation is robust to controlling for local economic and financial development, and more pronounced in declining industries than growing industries. Moreover, the share of government loans is positively correlated with investment-to-output ratio but negatively correlated with total factor productivity growth. Taken as a whole, the results are broadly consistent with the view that Japan's government financial institutions stimulate investment in declining industries while distorting capital allocation and reducing overall productivity growth.

Using Regression Analysis to Predict the Demand Function of Electricity: A Case Study

Due to the growing electricity consumption in Iran, investigating the changes of the electricity demand is one of the fundamental challenges facing many professionals and planners. The planners always invest efforts to address this issue by accurately predicting the electricity demand over the years and increasing the extra capacity respectively. One of the main tools for predicting the electricity demand is a regression model. Generally, in the papers, to estimate the annual electricity demand, the electricity prices and GDP per capita have been considered as independent variables. In this study, we used the data pertinent to the electricity prices, GDP per capita and investment per capita from 1974 to 2007, to estimate the annual electricity demand. In our estimated model, price elasticity, income elasticity and investment elasticity were 0.187, -0.566 and 1.207 respectively. The annual demand for the electricity for years 2008 and 2009 was predicted. The low error rate between the actual values and the predicted values shows that this model is an acceptable model

Influence of Endogenous Human Capital on China’s Economic Growth

Based on the framework of endogenous economic growth, this paper took the education sector as a separate human capital production sector, and then an economic growth model with endogenous human capital accumulation is constructed, and a combination of theoretical derivation and simulation is used for the education investment behavior of the Chinese household sector, as well as the analysis of the efficiency of human capital accumulation. Based on above theoretical analysis, then to study the impact of educational investment on economic growth. The study found that the more the elasticity of education investment, the higher the efficiency of human capital accumulation, and the greater willingness of families to increase investment on education. Human capital accumulation is a key factor in determining the economic growth potential of a country or region, and education is the most important way for the accumulation of human capital. The investment in education is necessary for China under the condition of the economic growth rate slowing down.