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The cost of capital, finance and high-tech investment

Author

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  • Mariana Spatareanu

Abstract

Investment is the most volatile component of aggregate demand and it is often considered central to business cycles fluctuations. The responsiveness of business investment to changes in its price is thus crucial to our understanding of economic activity. In spite of the key role played by the user cost of capital in economic analysis, there is little empirical support for the existence of substantial user cost elasticity. However, most of the evidence to date is based on aggregate user cost data, which may have introduced downward biases in the estimated user cost. This paper contributes to the literature by constructing a disaggregated, industry-specific micro user cost variable and focusing on a special class of firms - the high-tech firms. To provide a benchmark for the results, the user cost estimates for the high-tech sector are compared with those for the rest of the manufacturing sector. The results suggest that there is little response of investment to variations in its user cost. The findings also suggest that high-tech firms' investment behavior is not, after all, that different from the rest of the manufacturing sector.

Suggested Citation

  • Mariana Spatareanu, 2008. "The cost of capital, finance and high-tech investment," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(6), pages 693-705.
  • Handle: RePEc:taf:irapec:v:22:y:2008:i:6:p:693-705
    DOI: 10.1080/02692170802407635
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    References listed on IDEAS

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    1. Bernstein, J.I. & Nadiri, M.I., 1988. "Rates Of Return On Physical And R&D Capital And Structure Of The Production Process: Cross Section And Time Series Evidence," Working Papers 88-09, C.V. Starr Center for Applied Economics, New York University.
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    Cited by:

    1. Robert A. Blecker, 2015. "Wage-led Versus Profit-led Demand Regimes: The Long and Short of It," Working Papers 2015-05, American University, Department of Economics.

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