Advanced Search
MyIDEAS: Login to save this article or follow this journal

The determinants of business investment: has capital spending been surprisingly low?

Contents:

Author Info

  • Richard W. Kopcke
Registered author(s):

    Abstract

    Many are worried that since 1980 capital investment by businesses has been lower than expected. Unusual circumstances, such as changes in savings patterns or in business leverage, a credit crunch, or widespread adoption of a shorter-term outlook, have been suggested as culprits. To see whether investment spending has indeed departed from its traditional determinants, this article compares capital spending during the 1980s and early 1990s with projections of spending derived from historical relationships between investment and various measures of economic activity. ; The results show that capital investment has not been low for any surprising reasons; in general, business investment has adhered fairly well to its historical correspondence with output, profits, and the cost of capital. Investment in equipment behaved as the models predicted, while investment in nonresidential structures exceeded the models’ forecasts in the early eighties, in large part as a result of the construction of oil rigs and a commercial real estate boom. The author concludes that the disappointing volume of capital investment by businesses of late is a symptom of slow economic growth, not exceptional impediments.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.bostonfed.org/economic/neer/neer1993/neer193a.pdf
    Download Restriction: no

    Bibliographic Info

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

    Volume (Year): (1993)
    Issue (Month): Jan ()
    Pages: 3-31

    as in new window
    Handle: RePEc:fip:fedbne:y:1993:i:jan:p:3-31

    Contact details of provider:
    Postal: 600 Atlantic Avenue, Boston, Massachusetts 02210
    Phone: 617-973-3397
    Fax: 617-973-4221
    Email:
    Web page: http://www.bos.frb.org/
    More information through EDIRC

    Order Information:
    Email:

    Related research

    Keywords: Capital investments;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. William D. Nordhaus & James Tobin, 1971. "Is Growth Obsolete?," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 319, Cowles Foundation for Research in Economics, Yale University.
      • William D. Nordhaus & James Tobin, 1973. "Is Growth Obsolete?," NBER Chapters, in: The Measurement of Economic and Social Performance, pages 509-564 National Bureau of Economic Research, Inc.
      • William D. Nordhaus & James Tobin, 1972. "Is Growth Obsolete?," NBER Chapters, in: Economic Research: Retrospect and Prospect Vol 5: Economic Growth, pages 1-80 National Bureau of Economic Research, Inc.
    2. Plosser, C.I., 1989. "Understanding Real Business Cycles," RCER Working Papers 198, University of Rochester - Center for Economic Research (RCER).
    3. Fisher, Franklin M, 1969. "The Existence of Aggregate Production Functions," Econometrica, Econometric Society, Econometric Society, vol. 37(4), pages 553-77, October.
    4. Robert S. Pindyck, 1990. "Irreversibility, Uncertainty, and Investment," NBER Working Papers 3307, National Bureau of Economic Research, Inc.
    5. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    6. Kiviet, Jan F & Kramer, Walter, 1992. "Bias of SDE 2 in the Linear Regression Model with Correlated Errors," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 362-65, May.
    7. Gordon, Robert J, 1990. "What Is New-Keynesian Economics?," Journal of Economic Literature, American Economic Association, vol. 28(3), pages 1115-71, September.
    8. Tobin, James, 1982. "Money and Finance in the Macroeconomic Process," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 14(2), pages 171-204, May.
    9. Barry P. Bosworth, 1985. "Taxes and the Investment Recovery," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 1-45.
    10. Christopher A. Sims, 1982. "Policy Analysis with Econometric Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 107-164.
    11. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 213-24, January.
    12. Morrison, Catherine J, 1992. "Unraveling the Productivity Growth Slowdown in the United States, Canada and Japan: The Effects of Subequilibrium, Scale Economies and Markups," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 381-93, August.
    13. Blackorby, Charles & Schworm, William, 1988. "The Existence of Input and Output Aggregates in Aggregate Production Functions," Econometrica, Econometric Society, Econometric Society, vol. 56(3), pages 613-43, May.
    14. Paul A. Samuelson, 1964. "Tax Deductibility of Economic Depreciation to Insure Invariant Valuations," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 72, pages 604.
    15. Balasko, Yves, 1984. "The Size of Dynamic Econometric Models," Econometrica, Econometric Society, Econometric Society, vol. 52(1), pages 123-41, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Lynn Elaine Browne & Rebecca Hellerstein, 1997. "Are we investing too little?," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Nov, pages 29-50.
    2. Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1994. "Inventory (Dis)Investment, Internal Finance Fluctuations, and the Business Cycle," Macroeconomics, EconWPA 9401001, EconWPA.
    3. Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1995. "Three Financing Constraint Hypotheses and Inventory Investment: New Tests With Time and Sectoral Heterogeneity," Macroeconomics, EconWPA 9510001, EconWPA, revised 09 Oct 1995.
    4. Sylvain Martel, 2005. "Y a-t-il eu surinvestissement au Canada durant la seconde moitié des années 1990?," Working Papers, Bank of Canada 05-5, Bank of Canada.
    5. Stevans, Lonnie K., 2012. "Income inequality and economic incentives: Is there an equity–efficiency tradeoff?," Research in Economics, Elsevier, Elsevier, vol. 66(2), pages 149-160.
    6. Lindstrom, Tomas, 1998. "A fuzzy design of the willingness to invest in Sweden," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 36(1), pages 1-17, July.
    7. Jones, John Bailey, 2002. "Has fiscal policy helped stabilize the postwar U.S. economy?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(4), pages 709-746, May.
    8. Alejandro Diaz-Bautista & Julio R. Escandon, 2003. "A Simple Dynamic Model of Credit and Aggregate Demand," Macroeconomics, EconWPA 0308001, EconWPA.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fip:fedbne:y:1993:i:jan:p:3-31. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catherine Spozio).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.