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Investment Frictions and the Aggregate Output Loss in China

Author

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  • Guiying (Laura) Wu

    (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.)

Abstract

Investment frictions reduce, delay or protract investment expenditure that is necessary for ?rms to capture growth opportunities. Using a capital adjust- ment costs framework, this paper estimates the gap between China?s actual and frictionless aggregate output. It applies the method of simulated moments to a fully structural investment model on a panel of Chinese ?rms; and takes into ac- count potential unobserved heterogeneities and measurement errors in the data. The estimated capital adjustment costs are substantial and vary across ?rms of di¤erent sizes, and across regions with di¤erent investment environments. If Chinese ?rms had faced a lower level of adjustment costs such as in the U.S., China?s aggregate output would be 25% higher.

Suggested Citation

  • Guiying (Laura) Wu, 2013. "Investment Frictions and the Aggregate Output Loss in China," Economic Growth Centre Working Paper Series 1307, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
  • Handle: RePEc:nan:wpaper:1307
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    References listed on IDEAS

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    More about this item

    Keywords

    Investment; Capital Adjustment Costs; Method of Simulated Moments;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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