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An Alternative Estimation Framework for Firm-Level Capital Investment

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  • Julian Fennema

Abstract

Our understanding of the effect of investment-financing constraints in transition economies faces significant problems, both in terms of choice of the underlying theoretical model of investment behaviour and in the estimation framework adopted. These problems drive the choice in this paper of implementing a double hurdle estimation routine based on the Abel and Eberly (1998) investment model. We find evidence that a model incorporating intermittent adjustment of capital stock and using rates of capacity utilisation captures different effects compared to a standard accelerator model. Application of this methodology to sample of firms from Romania and Spain suggests that firms in Romania may be more financially constrained than previously estimated.

Suggested Citation

  • Julian Fennema, 2006. "An Alternative Estimation Framework for Firm-Level Capital Investment," CERT Discussion Papers 0602, Centre for Economic Reform and Transformation, Heriot Watt University.
  • Handle: RePEc:hwe:certdp:0602
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    References listed on IDEAS

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    More about this item

    Keywords

    investment; financing constraints; double hurdle; transition;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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