Australian Business Investment: A New Look at the Neoclassical Approach*

This paper attempts to reconcile neoclassical theory with Australian investment data. We argue that, by focusing almost exclusively on the demand for capital services, neoclassical investment theory neglects two related decisions: the decision to own the existing capital stock, and the decision to produce new capital goods. We propose a simple model of investment behaviour that integrates production decisions with portfolio decisions. Careful consideration is given to the determination of the price of capital, the rental price of capital, and the return on capital. The model is estimated by FIML, and a number of simulation results are reported.     

Self-fulfilling patience

This paper explores macroeconomic implications of investment in patience in a standard neoclassical growth model with Becker-Mulligan endogenous time preferences. The endogenous discount rate acts as a new margin for inter-temporal decisions, in addition to the standard margin that hinges on the marginal return of capital. This time preference margin alters the equilibrium dynamics and stability of the neoclassical growth model substantially. When the discount rate is positive, there may exist multiple steady states that are either saddle-point stable or unstable. When the discount rate is negative, the unique steady state is locally indeterminate due to self-fulfilling patience investment. Interestingly, the existence of the local indeterminacy does not need any externality. When the discount rate is zero, various types of bifurcations can happen, leading to rich equilibrium dynamics such as limit cycles and chaos. We show that opening up the closed economy can cause aggregate instability.     

Human capital,innovation and productivity in Colombian enterprises: a structural approach using instrumental variables

ABSTRACT

In this paper we explore the R&D–innovation–productivity linkage for the Colombian manufacturing industry, paying special attention to the role of human capital. Using data from two firm-level surveys, the Survey of Development and Technological Innovation (EDIT) and the Annual Manufacturing Survey (EAM), we extend the model of Crépon, Duguet, and Mairesse [1998. ‘Research, Innovation and Productivity: An Econometric Analysis at the Firm Level.’ Economics of Innovation and New Technology 7 (2): 115–158] (hereafter CDM) by including human capital at the investment decision stage. We implement an instrumental variable methodology to correct the potential endogeneity that may arise with the inclusion of human capital. Our results suggest that human capital has a causal effect on research and development (R&D) investment decisions, the innovation behavior of the firm, and increases the labor productivity of the firm. The conclusions highlight the relevance of human capital in the surrounding literature which stands in contrast to prior work that has not included this variable.     

What Do Data Say About Monetary Policy,Bank Liquidity and Bank Risk Taking?

This paper tests empirically the linkage between banks' investment and interbank lending decisions in response to interest rate changes. We draw conclusions for the monetary policy, which uses the interest rate as its main tool. Across European countries we find that the risk-free (i.e. monetary policy) interest rate negatively affects the liquidity retained by banks and the decision of a bank to be a lender in the interbank market. Instead, the interbank interest rate has a positive impact on these decisions. We also find that banks who lend show less risk-taking behaviour and tend to be smaller than those who are borrowers. Most importantly, the risk-free interest rate is positively correlated with loans investment and bank risk-taking behaviour.     

Irreversible investment with regime shifts

Under the real options approach to investment under uncertainty, agents formulate optimal policies under the assumption that firms’ growth prospects do not vary over time. This paper proposes and solves a model of investment decisions in which the growth rate and volatility of the decision variable shift between different states at random times. A value-maximizing investment policy is derived such that in each regime the firm's investment policy is optimal and recognizes the possibility of a regime shift. Under this policy, investment is intermittent and increases with marginal q. Moreover, investment typically is very small but, in some states, the capital stock jumps. Implications for marginal q and the user cost of capital are also examined.     

An empirical study of the impact of information technology intensity in strategic investment decisions

This paper focuses on two issues of the management of strategic information technology investment decisions (SITIDs). First, it examines the outcomes of strategic investment decisions (SIDs) according to the extent of IT intensity in the investment project (termed IT-ness). Second, IT-ness is assessed in realtion to a numberr of dimensions, including decision formulating process, evealuation process and decision content. Empirical testing is based on a sample of 80 SIDs from Taiwanese enterprises. Thw results show that IT-ness is negatively associated with the effectiveness of SIDs and several constructs in the decision process. The implicaitons of this for the evaluaiton and management of SITIDs, and on agenda for further research into the effectiveness of SITIDs, are discussed.     

Pollution Control and Foreign Direct Investment in Mexico: An Industry-Level Analysis

Foreign direct investment (FDI) flows into developing countries have been increasing dramatically over the past decade. At the same time, there has been widespread concern that lax environmental standards are in part responsible for this surge. This paper revisits the question of the existence of a pollution haven effect by examining the extent to which the pollution intensity of production helps explain FDI in Mexico. We focus on pollution intensities, which are directly related to emission regulations, rather than unobservable pollution taxes and allow for substitution between capital and pollution. Examining several different pollutants, we find a positive correlation between FDI and pollution that is statistically and economically significant in the case of the highly regulated sulfur dioxide emissions. Industries for which the estimated relationship between FDI and pollution is positive receive up to 30% of total FDI and 30% of manufacturing output. Although we confirm the importance of Mexico’s comparative advantage in labor-intensive production processes, consistent with the previous literature, our results suggest that environmental considerations may matter as well for firms’ investment decisions.      

Investment and technological choice in a right-to-manage model

We analyze the interactions between investment and local wage bargaining in a putty-clay model where the investment decision commits the firm to a particular capital intensity. This technological precommitment is used strategically in order to manipulate the bargaining outcome. We show that this strategic behavior induces a nonmonotonic relationship between the capital and labor demands of the firm and most of its environmental parameters (e.g., the bargaining power of the union, its minimum wage requirement, the capital cost). The results we obtain in our putty-clay framework thus contradict several conclusions of the standard literature on wage bargaining and investment.     

Minimum Wage Legislation, Investment and Human Capital

A two period, general equilibrium, model is analysed in which agents foresee how the second period outcome is determined by the investment decisions which they make in the first period. These decisions concern the acquisition of human and physical capital. The paper considers the impact of a minimum wage in the second period. It shows that, in equilibrium, this policy increases both types of investment. There is a range of values of the minimum wage at which the increases in investment are obtained without any reduction in period 2 employment. This is welfare-improving for a range of parameter values. Under very specific circumstances, the minimum wage achieves a Pareto efficient outcome.     

Organizational capital and the international co-movement of investment

A recent literature explores the macroeconomic implications of organizational capital (OC) and especially its ability to resolve discrepancies between existing models and data. This paper contributes to the OC literature by studying the effect of OC on international investment flows in the context of a two-country real business cycle model. The presence of OC introduces novel considerations into agents’ investment decisions since current investment and future productivity levels are positively linked. These new considerations help bring the model closer to the data. In response to a productivity shock in one country, investment increases in both countries, producing positive international co-movement in investment, a feature of the data that several IRBC models fail to produce.     

经常项目逆差会导致货币危机吗

经常项目逆差与货币危机之间存在着相互关系。从理论上分析,汇率变动率可分解为经常项目差额变动率、资本项目差额变动率以及综合影响比率三者之和;但从实证角度看,汇率变动与其影响因素的变动关系相当复杂。研究显示,该关系很难直接通过线性回归模型来表达。通过相关分析,我们揭示出经常项目逆差与汇率贬值存在较明显的正相关关系;汇率贬值与GDP增长有较强的负相关性。但中国的情况似乎有些特殊,仍有待进一步考察。     

On the Separability of Real and Financial Decisions

The financial manager faces two basic problems: first, the firm’s investment or capital budgeting decision, and second, the financing decision. Capital investment and financing decisions are typically analyzed independently. Capital budgeting criteria proceeds under the simplest possible assumption about financing, namely all-equity financing. The only link between investment and financing decisions is the cost of capital. The basic idea behind Modigliani and Miller’s famous proposition I is that in perfect markets, changes in capital structure do not affect value. As long as the total cash flow generated by the firm’s assets is unchanged by capital structure, value is independent of capital structure. This paper is the first attempt to prove that leverage affects the mathematical structures of the cash flow of financing, and that different mathematical structures of financing cash flows may change the total cash flows generated by the firm or the project, thus altering the value of the firm even in perfect markets. The purpose of this paper is to explore the validity of the separation rule through net present value (NPV) and internal rate of return (IRR) rules, as representatives of academic and business practice, and compare their results with simulations that will include the financial decision of the firm. A singular experiment proving that we can change the IRR or NPV of an investment modifying the financial structure cannot be used to affirm a universal statement, but it can be used to show that a theory is wrong.     

How environmental concern influences the investment decision: an application of capital theory

We develop a conceptual analysis of long-run decisions about the economy and the environment. In particular, we focus on the innovation of a new technique of production. We base our study on three components. First, capital theory as means of describing production. Second, joint production as implied by the laws of thermodynamics. Third, the time structure of the produced waste by-product, characterised by the magnitude of its degradation rate. The crucial variable in our analysis is the decision maker's time horizon. We show that, unlike in the no pollution case or in the flow pollution case, extending the time horizon when there is a polluting capital bad may make it less likely that a new technique of production is introduced. We conclude that fully taking into account dynamic aspects of environmental pollution considerably increases the complexity of economic valuation and the need for environmental precaution when making an investment decision.     

PRODUCTIVITY OR UNEXPECTED DEMAND SHOCKS: WHAT DETERMINES FIRMS' INVESTMENT AND EXIT DECISIONS?

We investigate the roles played by unexpected demand shocks, besides productivity, on firms' capital investment and exit decisions. We propose a practical approach to recover unexpected firm‐level demand shocks using inventory data. The recognition of demand shocks and inventory also improves the productivity estimation. The empirical results indicate that although productivity and demand shocks are both significant factors determining firm behavior, the former is more dominant for investment decision and the latter is more salient for firm exit. These findings confirm that unexpected demand shocks, besides persistent productivity, are important factors when analyzing capital investment and firm exit decisions.     

Impact of China on trade in electronic products

Using 6-digit product-level data of exports in electronics, this paper finds robust evidence that China's exports adversely affect both the intensive export margin and the extensive export margin of its competitors for the 1992–2018 period. The displacement effects of China's exports on the intensive margin apply especially for the group of intermediate and capital electronic goods and are much more robust and significantly larger in magnitude than the displacement effects found in other studies using aggregated trade data. Finally, we find that China's displacement effect is increasing in China's advantage relative to its competitors in terms of human capital index and internet access of its population.     

Why does the investment rate not increase? Capital accumulation and stabilization policy in the 1990s and 2000s in Brazil

The stabilization of inflation was conquered in the mid-1990s, but since then the Brazilian economy has not shown a stable growth trend. This article discusses how the maintenance of a high interest rate in Brazil has affected growth through its impact on investment decision. In a macroeconomic environment with a relatively high degree of uncertainty, decisions to accumulate capital rely heavily on retained earnings and are negatively affected by the persistent high level of interest rates. Our econometric exercise reveals that the interest rate is the most important variable to explain the investment rate, and that financialization negatively impacts physical capital accumulation.     

The effects of company taxation in EU accession countries on German FDI1

This article investigates how company taxation affects German foreign direct investment (FDI) in European Union (EU) accession countries. In 2004 and 2007, 10 former socialist eastern European countries joined the EU. Although the EU integration is associated with increasingly favourable investment conditions, accession countries also pursue active strategies to attract foreign firms. In particular, taxes on corporate income have been significantly reduced during the last decade. We analyse whether corporate tax policies of eastern European countries affect three aspects of multinational activity: the location decision, the investment decision and the capital structure choice. The results suggest that local taxes are negatively related to both location and investment decisions. The analysis of the capital structure confirms that higher local taxes imply higher debt‐to‐capital ratios.     

Does R&D spending boost tangible investment? An analysis on European firms

This article investigates the relationship between firm’s R&D intensity, expressed as R&D expenditure over sales, and investment intensity in tangible assets. It is commonly acknowledged that R&D requires additional physical investment to be implemented. R&D increases a firm’s productivity and return to tangible investments, thus, providing to the firm incentives to bear high tangible capital costs and to invest more. This represents a crucial issue for a firm’s growth, particularly considering the strong interaction between physical capital accumulation and technological progress. The analysis is based on a large sample of manufacturing firms across seven European countries in the period 2007–2009. Since the sub-sample of firms performing R&D might not be random, there may potentially be an endogeneity issue. The analysis also considers that firms may decide to spend on R&D and investment in physical capital simultaneously. The questions of both endogeneity and simultaneity are dealt with by employing an instrumental variable two-step procedure. We find a positive and significant impact of R&D intensity on firms’ tangible investment intensity. The econometric results highlight the importance of financial factors, particularly with respect to firms’ internal resources. Exposure to international trade has a negative impact on investment, possibly depending on the time-span of the sample used.

Abbreviations: Technological Innovation and R&D; Investment Capital; Industry Studies; Firm Behavior; Empirical Analysis     

How much does schooling disutility matter?

Studies on structural education choice models are often inconsistent in choosing whether and how to include a disutility of education, especially in an environment with risk and wealth inequality. We show that adding a disutility term to the education decision, a human capital investment option, is equivalent to assuming a relationship between wealth, risk, and education. Utility gain from education is increasing in the riskiness of future consumption. A riskier environment further propels an agent to choose the human capital investment option that maximizes future income. If the degree of risk increases heterogeneously across multiple human capital investment options, risk aversion and the precautionary savings motive can compound or negate each other depending on which option has a greater increase in risk.     

融资融券对企业全要素生产率影响的研究——来自我国上市公司的实证研究

本文以我国上市公司企业为样本,研究了融资融券对企业全要素生产率的影响.实证结果显示,企业进入融资融券标的名单后,其全要素生产率得到显著上升,表明融资融券作为企业外部治理机制,显著提高了企业全要素生产率.进一步研究表明,融资融券机制对非国有企业、高科技企业和资金约束较小的企业的生产率的促进作用较大,并通过对融资机制和融券机制的区分研究,显示两种机制均促进了企业生产率的提高.研究结果说明了融资融券机制会改善企业内部信息不对称,加强资本市场对企业的监督,从而提升其全要素生产率.