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on Business Economics |
| By: | Christopher F Baum (Boston College; DIW Berlin); Mustafa Caglayan (University of Sheffield); Oleksandr Talavera (School of Economics, University of East Anglia) |
| Abstract: | This paper empirically examines whether additional future fixed capital and R&D investment expenditures induce firms to accumulate cash reserves while considering the role of market imperfections. Implementing a dynamic framework on a panel of US, UK and German companies, we find that firms make larger additions to cash holdings when they plan additional future R&D rather than fixed capital investment expenditures. This behavior is particularly prevalent among small and non-dividend paying firms that are heavily involved in R&D activities. We also show that the cash flow sensitivity of cash is substantially higher for financially constrained firms than for their unconstrained counterparts in the US and the UK, but only marginally higher in Germany. |
| Keywords: | cash holdings, fixed investment, R&D investment, dynamic panel regressions |
| JEL: | G21 G32 |
| Date: | 2009–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:712&r=bec |
| By: | Bruce T. Grimm; Brian K. Sliker (Bureau of Economic Analysis) |
| Abstract: | Decline in volatility of the U.S.economy that occurred in about 1984 primarily results from declines in covariances between industries, or between states, rather than declines in variances of the individual industries or states |
| JEL: | E60 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0043&r=bec |
| By: | Ian Christensen; Paul Corrigan; Caterina Mendicino; Shin-Ichi Nishiyama |
| Abstract: | Using Bayesian methods, we estimate a small open economy model in which consumers face limits to credit determined by the value of their housing stock. The purpose of this paper is to quantify the role of collateralized household debt in the Canadian business cycle. Our findings show that the presence of borrowing constraints improves the performance of the model in terms of overall goodness of fit. In particular, the presence of housing collateral generates a positive correlation between consumption and house prices. Finally we find that housing collateral induced spillovers account for a large share of consumption growth during the housing market boom-bust cycle of the late 1980s. |
| Keywords: | Business fluctuations and cycles; Credit and credit aggregates; Transmission of monetary policy |
| JEL: | E21 E32 E44 E52 R21 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:09-26&r=bec |
| By: | Diego A. Comin (Harvard Business School, Business, Government and the International Economy Unit); Norman Loayza (Economics Research, World Bank Group); Farooq Pasha (Boston College, Economics); Luis Serven (World Bank - Office of the Chief Economist) |
| Abstract: | We build a two country asymmetric DSGE model with two features: (i) a product cycle structure determines the range of intermediate goods used to produce new capital in each country and (ii) there are investment flow adjustment costs in the developing economy. We calibrate the model to match the Mexico-US trade and FDI flows. The model is able to explain (i) why US shocks have a larger effect on Mexico than in the US and hence why the Mexican economy is more volatile than the US; (ii) why US business cycles lead over medium term fluctuations in Mexico and (iii) why Mexican consumption is not less volatile than output. |
| Keywords: | Business Cycles in Developing Countries, Co-movement between Developed and Developing economies, Volatility, Extensive Margin of Trade, Product Life Cycle, FDI. |
| JEL: | E3 O3 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:10-029&r=bec |
| By: | Jean-Sébastien Fontaine; René Garcia |
| Abstract: | Recent asset pricing models of limits to arbitrage emphasize the role of funding conditions faced by financial intermediaries. In the US, the repo market is the key funding market. Then, the premium of on-the-run U.S. Treasury bonds should share a common component with risk premia in other markets. This observation leads to the following identification strategy. We measure the value of funding liquidity from the cross-section of on-the-run premia by adding a liquidity factor to an arbitrage-free term structure model. As predicted, we find that funding liquidity explains the cross-section of risk premia. An increase in the value of liquidity predicts lower risk premia for on-the-run and off-the-run bonds but higher risk premia on LIBOR loans, swap contracts and corporate bonds. Moreover, the impact is large and pervasive through crisis and normal times. We check the interpretation of the liquidity factor. It varies with transaction costs, S&P500 valuation ratios and aggregate uncertainty. More importantly, the liquidity factor varies with narrow measures of monetary aggregates and measures of bank reserves. Overall, the results suggest that different securities serve, in part, and to varying degrees, to fulfill investors' uncertain future needs for cash depending on the ability of intermediaries to provide immediacy. |
| Keywords: | Financial markets; Financial stability |
| JEL: | E43 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:09-28&r=bec |
| By: | Christian Arndt; Claudia Buch; Anselm Mattes |
| Abstract: | Exporters and multinationals are larger and more productive than their domestic counterparts. In addition to productivity, financial constraints and labor market constraints might constitute barriers to entry into foreign markets. We present new empirical evidence on the extensive and intensive margin of exports and FDI based on detailed micro-level data of German firms. Our paper has three main findings. First, in line with earlier literature, we find a positive impact of firm size and productivity on firms’ international activities. Second, small firms suffer more frequently from financial constraints than bigger firms, but financial conditions have no strong effect on internationalization. Third, labor market constraints constitute a more severe barrier to foreign activities than financial constraints. Being covered by collective bargaining particularly impedes international activities. |
| Keywords: | foreign direct investment, exports, firm heterogeneity, productivity,financial constraints, labor market constraints |
| JEL: | F2 G2 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:iaw:iawdip:52&r=bec |
| By: | Domenico Giannone; Michele Lenza |
| Abstract: | This paper shows that general equilibrium effects can partly rationalize the high correlation between saving and investment rates observed in OECD countries. We find that once controlling for general equilibrium effects the saving-retention coefficient remains high in the 70’s but decreases considerably since the 80’s, consistently with the increased capital mobility in OECD countries. |
| Keywords: | Saving-Investment correlation, capital mobility, international comovement, dynamic factor model. |
| JEL: | C23 F32 F41 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2009_022&r=bec |
| By: | Benjamin Campbell; Martin Ganco; April Franco; Rajshree Agarwal |
| Abstract: | We theorize that differences in human assets’ ability to generate value are linked to exit decisions and their effects on firm performance. Using linked employee-employer data from the U.S. Census Bureau on legal services, we find that employees with higher earnings are less likely to leave relative to employees with lower earnings, but if they do leave, they are more likely to move to a spin-out instead of an incumbent firm. Employee entrepreneurship has a larger adverse impact on source firm performance than moves to established firms, even controlling for observable employee quality. Findings suggest that the transfer of human capital, complementary assets, and opportunities all affect mobility decisions and their impact on source firms. |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:09-32&r=bec |
| By: | Peter Thompson (Department of Economics, Florida International University); Jing Chen (Department of Economics, Florida International University) |
| Abstract: | A team of managers engaged in production using technology x, is considering switching to technology y. The value of y is learned slowly over time, but constraints on the ability of individual managers to communicate their beliefs allow disagreements to emerge among team members. Managers who develop sufficiently strong disagreements with their colleagues choose to form new companies to implement their preferred strategy. Out of a symmetric model of disagreement, two distinct classes of spinoffs arise. A type 1 spinoff forms when an employee comes to believe it is worth switching to y but the firm does not. A type 2 spinoff arises when an employee sufficiently disagrees with the firm’s decision to switch strategy that he is willing to invest in order to continue with x. The comparative dynamics of the formation of type 1 and type 2 spinoffs are distinct, and yield some novel implications that are tested using data on spinoffs in the British automobile industry. |
| Keywords: | Spinoffs, learning, strategic disagreement. |
| JEL: | L2 D70 D83 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:fiu:wpaper:0910&r=bec |
| By: | Holinski Nils; Kool Clemens; Muysken Joan (METEOR) |
| Abstract: | Recent empirical work has shown that ongoing international financial integration facilitates cross-country consumption risk-sharing. While these studies typically employ absolutemeasures to account for a country''s integration in international capital markets, we devise a relative measure that is motivated by the International Capital Asset Pricing Model (I-CAPM) literature. Our measure captures the composition of a country''s international portfolio relative to the world portfolio, which all countries should optimally hold according to the I-CAPM. Using panel-data regression for a group of OECD countries during the financial globalization period 1980-2007, we show that the geography of international portfolioshelps to explain the degree of consumption risk-sharing obtained. |
| Keywords: | macroeconomics ; |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2009037&r=bec |
| By: | Karolien De Bruyne |
| Abstract: | We analyze how unionized wage setting a¤ects the location of firms. We find that the degree of centralization (at firm or sectoral level) and regionalization (at regional or supra-regional level) is crucial. We show that wage setting at the firm level is the best policy to attract firms when trade costs are low, while wage setting at a more centralized level is most effective to attract firms when trade costs are high. Moreover, wage setting at the supra-regional level is beneficial for the already more agglomerated region and hurts the peripheral region. |
| Keywords: | location, unions, regionalization, centralization |
| JEL: | J51 R12 R3 F12 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ete:vivwps:9&r=bec |
| By: | Galo Nuño (Banco de España) |
| Abstract: | In this paper we integrate Schumpeterian endogenous growth into a general equilibrium framework. By explicitely modelling the innovation and technology adoption process we are able to match some stylized economic facts such as entry rates and survival times of firms in the U.S. economy or the maximum convergence rates accross countries. Additionally, it allows us to propose a new definition of what a technology shock is and to compare it with the standard definition. Results show how this framework provides a plausible description of how economies grow and respond to the arrival of new technologies. |
| Keywords: | Medium-term business cycles, Schumpeterian growth, technology adoption |
| JEL: | E3 O3 O4 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0922&r=bec |
| By: | Navon, Guy |
| Abstract: | The paper studies the relationship between human capital spillovers and productivity using a unique longitudinal matched employer–employee dataset of Israeli manufacturing plants that contains individual records on all plant employees. I focus on the within-plant diversity of employees’ higher-education diplomas (university degrees). The variance decomposition shows that most knowledge diversity takes place within the industries. Using a semi-parametric approach, the study finds that hiring workers who are diversified in their specific knowledge is beneficial for plants’ productivity—the knowledge-diversity elasticity is about 0.2–0.25 and is robust—and that the benefit of knowledge diversity increase with the size of the plant. This suggests that for each allocation of labor in the production process it is beneficial for plants to diversify their skilled labor. The findings also suggest that the conventional way of estimating plant-level production function using Ordinary Least Squares or Fixed-Effects method is biased upward due to simultaneity of the inputs and the unobserved productivity shock. |
| Keywords: | human capital; spillovers; within; firm; plant; guy; navon; pakes; levinsohn; petrin; poi; olley |
| JEL: | J41 E24 J31 J24 D24 J82 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17741&r=bec |
| By: | Hui He (Department of Economics, University of Hawaii at Manoa) |
| Abstract: | This paper quantitatively examines the effects of two exogenous driving forces, investment-specific technological change (ISTC) and the demographic change known as “the baby boom and the baby bust,” on the evolution of the skill premium in the postwar U.S. economy. I develop an overlapping generations general equilibrium model with endogenous discrete schooling choice. The production technology features capital-skill complementarity as in Krusell et al. (2000). ISTC, through capital-skill complementarity, raises the relative demand for skilled labor, while demographic variation affects the skill premium through changing the age structure and hence relative supply of skilled labor. I find that demographic change is more important in shaping the skill premium before 1980. Since then, ISTC takes over to drive the dramatic increase in the skill premium. |
| Keywords: | Skill Premium; Schooling Choice; Demographic and Technological Change; Capital-Skill Complementarity; Overlapping Generations |
| JEL: | E25 I21 J11 J24 J31 O33 |
| Date: | 2009–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:200911&r=bec |
| By: | FARHI, Emmanuel; TIROLE, Jean |
| JEL: | E44 E52 G28 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:20896&r=bec |
| By: | Ali Hortacsu; Chad Syverson |
| Abstract: | Many firms own links of production chains--i.e., they own both upstream and downstream plants in vertically linked industries. We use broad-based yet detailed data from the economy’s goods-producing sectors to investigate the reasons for such vertical ownership. It does not appear that vertical ownership is usually used to facilitate transfers of goods along the production chain, as is often presumed. Shipments from firms’ upstream units to their downstream units are surprisingly low, relative to both the firms’ total upstream production and their downstream needs. Roughly one-third of upstream plants report no shipments to their firms’ downstream units. Half ship less than three percent of their output internally. We do find that manufacturing plants in vertical ownership structures have high measures of “type” (productivity, size, and capital intensity). These patterns primarily reflect selective sorting of high plant types into large firms; once we account for firm size, vertical structure per se matters much less. We propose an alternative explanation for vertical ownership that is consistent with these results. Namely, that rather than moderating goods transfers down production chains, it instead allows more efficient transfers of intangible inputs (e.g., managerial oversight) within the firm. We document some suggestive evidence of this mechanism. |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:09-31&r=bec |
| By: | Nadja Dwenger |
| Abstract: | Using a firm-level panel data set I assess whether dynamic models of in- vestment provide an empirically fruitful framework for analyzing tax effects on changes in capital stock. In particular I estimate a one-step error correction model (ECM) complementing the usual estimation of a distributed lag model. A correction term accounts for non-random sample attrition, which has not been considered in previous studies on investment even though most (if not all) panel data sets on firms are incomplete. Both, ECM and distributed lag model, suggest that user cost of capital and output have an economically and statistically significant influence on capital formation. In the ECM, however, estimates are larger in size and match theoretical pre- dictions more closely. My preferred estimate of -1.3 implies that a decrease in the user cost of capital by 10 percent will increase the firm's capital stock by 13 percent, on average. Taking my elasticity estimate to the Corporate Tax Reform 2008 I would expect that the reform only slightly increases cap- ital stock, since the rather strong reduction in corporate income tax rate was partly compensated for by stricter depreciation allowances. Investment dynamics appear to be crucial for the coefficients of cash flow variables in investment equations. While cash flow effects are present in the (first- differenced) distributed lag model, they vanish in the ECM. This leads me to conclude that well documented cash flow effects point at dynamic misspecification in previous studies. |
| Keywords: | Taxation, business investment, user cost of capital, dynamic specification |
| JEL: | E22 H25 H32 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp924&r=bec |
| By: | Mallick, Debdulal |
| Abstract: | This paper argues that studying the effect of financial development and shocks on aggregate growth volatility will not be informative because they affect growth volatility through its different components. Volatility declines either a consequence of a change in the nature of shocks or a change in how the economy reacts to shocks. If two economies differ only in terms of volatility of shocks experienced, the GDP growth spectrum of one economy will lie proportionately below that of another at all frequency ranges so that both business cycle and long-run variances will be lower. Conversely, if change in volatility is due to propagation mechanism such as financial development, a country having developed financial markets will have disproportionately lower variance at the business cycle than at other frequencies relative to that of a country having less developed financial markets. Therefore, the variance at only the business cycle frequency range will be influenced by financial development. The novelty of this paper is that different components of growth volatility are extracted using spectral method. Empirical evidence provides qualified support for both hypotheses. Higher private credit, which is used as proxy of financial development, dampens business cycle volatility but not the long-run volatility. Shocks, as measured by changes in the terms of trade, affect both business cycle and long-run volatility negatively. These results are robust to alternative market-based measure of financial development, and corrections for reverse causality. These results have important implications for growth theory as they shed lights on the factors causing permanent and transitory deviations from the steady state. |
| Keywords: | Financial development; growth volatility; business cycle; spectral analysis |
| JEL: | E32 O16 C22 E44 O50 C21 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17799&r=bec |
| By: | Alain Gabler; Omar Licandro |
| Abstract: | This paper contributes to the literature on both embodied technical progress and firm dynamics, by formulating an endogenous growth model where selection and imitation play a fundamental role in helping capital good producers to learn about the productivity of technologies embodied in new plants. By calibrating the model to some key aggregates particularly relevant for the embodied capital literature, among them the growth rate of the relative investment price, the model quantitatively replicates the main facts associated to firm dynamics, such as the entry rate and the tail index of the establishment size distribution. In line with the previous literature, it also predicts a contribution to productivity growth of embodied technical progress and selection of around 60% |
| Keywords: | endogenous growth; investment- specific technological change; selection and imitation; firm entry and exit. |
| JEL: | B52 O3 O41 |
| Date: | 2009–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:782.09&r=bec |
| By: | Oh, Donghyun (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Heshmati, Almas (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | This paper presents the parametric estimation of the rates of technical change and total factor productivity (TFP) growth of 7,462 Korean manufacturing firms for the period 1987 to 2007. Two alternative formulations of technical change measured by the time trend and the general index approaches are estimated with panel data models assuming flexible functional forms. Several extensions of each approach are also considered and their benefits and limitations are discussed. In addition to making estimates of the TFP growth and its decomposition, the paper compares the parametric TFP growth measure with the non-parametric Solow residual serving as a benchmark. Several hypotheses related to technology level, firm sizes, industrial sectors, skill biased technological change and macroeconomic and industrial policies are tested to explain the growth patterns and heterogeneity in technical change, input biases and TFP growth rates. Using second regression analysis, the paper explores the determinants of TFP growth and their policy implications. |
| Keywords: | Total factor productivity; technical change; manufacturing industry; determinants of growth; |
| JEL: | C23 C51 D24 L25 L60 |
| Date: | 2009–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0201&r=bec |