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Australian Business Investment: A New Look at the Neoclassical Approach

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  • ULRICH KOHLI
  • CHRISTOPHER J. RYAN

Abstract

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.

Suggested Citation

  • Ulrich Kohli & Christopher J. Ryan, 1986. "Australian Business Investment: A New Look at the Neoclassical Approach," The Economic Record, The Economic Society of Australia, vol. 62(4), pages 451-467, December.
    • Handle: RePEc:bla:ecorec:v:62:y:1986:i:4:p:451-467
    DOI: 10.1111/j.1475-4932.1986.tb00910.x
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    References listed on IDEAS

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    9. Kohli, Ulrich R, 1983. "The Le Chatelier Principle and the Demand for Imports in the Short Run and the Medium Run: Australia, 1959-60--1978-79," The Economic Record, The Economic Society of Australia, vol. 59(165), pages 149-165, June.
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    Cited by:

    1. WARWICK J. McKIBBIN & ERIC S. SIEGLOFF, 1988. "A Note on Aggregate Investment in Australia," The Economic Record, The Economic Society of Australia, vol. 64(3), pages 209-215, September.

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