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Capital costs, industrial mix, and the composition of business investment

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Author Info

  • Yolanda K. Henderson
  • Jeffrey B. Liebman

Abstract

The composition of business investment in the United States changed dramatically during the 1980s. Workplaces were transformed as a result of investments in information processing equipment such as computers, fax machines, copiers, and sophisticated telephones. Businesses built new office towers and shopping malls, but few industrial facilities. ; This article considers the extent to which changes in the cost of capital can account for these shifts. A number of developments occurred in the 1980s that affected the cost of capital more for some industries and assets than others. It is well known, for example, that computer prices fell sharply. Also, policymakers enacted significant revisions to the tax laws in efforts to alter the allocation of investment. The article concludes that the changes are due in large part to movements in real capital goods prices across industries and across assets.

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File URL: http://www.bostonfed.org/economic/neer/neer1992/neer192d.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

Volume (Year): (1992)
Issue (Month): Jan ()
Pages: 67-92

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Handle: RePEc:fip:fedbne:y:1992:i:jan:p:67-92

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Keywords: Capital ; Corporations - Finance;

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Cited by:
  1. Michael P. O'Malley, 1996. "Tax exhaustion, firm investment, and leasing; a test of the Q model of investment," Finance and Economics Discussion Series 96-31, Board of Governors of the Federal Reserve System (U.S.).
  2. Stanley C. W. Salvary, 2004. "The Neoclassical Model, Corporate Retained Earnings, And The Regional Flows Of Financial Capital," Urban/Regional 0410007, EconWPA.

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