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Upstream financial flows, intangible investment, and allocative efficiency

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  • Zhang, Haiping

Abstract

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.

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  • Zhang, Haiping, 2022. "Upstream financial flows, intangible investment, and allocative efficiency," Journal of Macroeconomics, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:jmacro:v:72:y:2022:i:c:s0164070422000258
    DOI: 10.1016/j.jmacro.2022.103425
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    Cited by:

    1. Haiping Zhang, 2023. "Trade‐induced sectoral upgrading and upstream financial flows," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(3), pages 859-896, August.

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    More about this item

    Keywords

    Financial frictions; Heterogeneous pledgeability; Intangible capital; Investment elasticity; Wealth inequality;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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