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Organizational Capital and the International Co-movement of Investment

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  • Alok Johri
  • Marc-Andre Letendre
  • Daqing Luo

Abstract

A productivity shock leads to a large international transfer of capital and negative co-movement of investment in the typical two-country real business cycle model. Most recent models that attempt to reduce or remove this transfer produce unrealistically low investment volatility. We show that adding organizational capital to the technological environment of a relatively standard international business cycle model can ameliorate this problem. In addition we show that GHH preferences along with the above modification are sufficient to deliver positive cross-country correlations of consumption, hours, output and investment.

Suggested Citation

  • Alok Johri & Marc-Andre Letendre & Daqing Luo, 2010. "Organizational Capital and the International Co-movement of Investment," Department of Economics Working Papers 2010-05, McMaster University.
  • Handle: RePEc:mcm:deptwp:2010-05
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    References listed on IDEAS

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    Cited by:

    1. Guido Baldi & André Bodmer, 2017. "Intangible investments and international business cycles," International Economics and Economic Policy, Springer, vol. 14(2), pages 211-219, April.
    2. Johri, Alok & Letendre, Marc-André & Luo, Daqing, 2011. "Organizational capital and the international co-movement of investment," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 511-523.
    3. Alok Johri & Muhebullah Karimzada, 2015. "Learning Efficiency Shocks, Knowledge Capital and the Business Cycle : A Bayesian Evaluation," Department of Economics Working Papers 2015-11, McMaster University.
    4. Menno, Dominik, 2014. "Multinational Firms and Business Cycle Transmission," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100320, Verein für Socialpolitik / German Economic Association.
    5. Dmitriev, Alexandre & Roberts, Ivan, 2013. "The cost of adjustment: On comovement between the trade balance and the terms of trade," Economic Modelling, Elsevier, vol. 35(C), pages 689-700.
    6. Alok Johri & Bidyut Kumar Talukdar, 2011. "Organizational Capital and Optimal Ramsey Taxation," Department of Economics Working Papers 2011-09, McMaster University.

    More about this item

    Keywords

    International RBC; learning by doing; organizational capital; cross-country correlations; investment;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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