Land Prices and Business Fixed Investments in Japan
Japan has seen episodes in which boom and bust in land prices is accompanied by boom and bust in business fixed investment. We develop a model that includes land in the production function. We show that in this model movements in land prices will be associated with movements of the capital stock in the same direction, provided the elasticity of substitution between land and capital is greater than one. We then estimate an aggregate investment function. Consistent with an elasticity greater than one, increases in land prices are associated with increases in the business capital stock even after controlling for movements in output and the cost of capital; decreases have a symmetric effect. In the end, however, we find that movements in land prices explain relatively little of the movement in the business fixed investment. In addition to possibly indicating that the elasticity is very near one, the small effect may result because of difficulty in extracting information from noisy land prices, neglect of the effects of regulations, and failure to consider credit constraints.
|Date of creation:||Nov 2004|
|Publication status:||published as Klein, L.R. (ed.) Long Run Growth and Short Run Stabilization: Essays in Memory of Albert Ando. Cheltenham: Edward Elgar, 2006.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ogawa, Kazuo & Kitasaka, Shin-ichi & Yamaoka, Hiroshi & Iwata, Yasuharu, 1996. "Borrowing Constraints and the Role of Land Asset in Japanese Corporate Investment Decision," Journal of the Japanese and International Economies, Elsevier, vol. 10(2), pages 122-149, June.
- Fumio Hayashi, 1986. "Why Is Japan's Saving Rate So Apparently High?," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 147-234 National Bureau of Economic Research, Inc.
- Nobuhiro Kiyotaki & Kenneth D. West, 1996.
"Business Fixed Investment and the Recent Business Cycle in Japan,"
NBER Chapters,in: NBER Macroeconomics Annual 1996, Volume 11, pages 277-344
National Bureau of Economic Research, Inc.
- Nobuhiro Kiyotaki & Kenneth D. West, 1996. "Business Fixed Investment and the Recent Business Cycle in Japan," NBER Working Papers 5546, National Bureau of Economic Research, Inc.
- Fumio Hayashi, 1989. "Is Japan's saving rate high?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-9.
- Magnus Blomström & Jennifer Corbett & Fumio Hayashi & Anil Kashyap, 2003. "Structural Impediments to Growth in Japan," NBER Books, National Bureau of Economic Research, Inc, number blom03-1, June.
- Eaton, Jonathan, 1988. "Foreign-Owned Land," American Economic Review, American Economic Association, vol. 78(1), pages 76-88, March.
- Jonathan Eaton, 1984. "Foreign-Owned Land," NBER Working Papers 1512, National Bureau of Economic Research, Inc.
- Abel, Andrew B & Blanchard, Olivier J, 1986. "The Present Value of Profits and Cyclical Movements in Investment," Econometrica, Econometric Society, vol. 54(2), pages 249-273, March.
- Andrew B. Abel & Olivier J. Blanchard, 1983. "The Present Value of Profits and Cyclical Movements in Investment," NBER Working Papers 1122, National Bureau of Economic Research, Inc.
- Albert Ando, 2000. "On the Japanese Economy and Japanese National Accounts," NBER Working Papers 8033, National Bureau of Economic Research, Inc.
- Albert Ando & John Hancock & Gary Sawchuk, 1997. "Cost of Capital for the United States, Japan, and Canada: An Attempt at Measurement Based on Individual Company Records and Aggregate National Acccoun," NBER Working Papers 5884, National Bureau of Economic Research, Inc.
- Albert Ando & Dimitrios Christelis & Tsutomu Miyagawa, 2003. "Inefficiency of Corporate Investment and Distortion of Savings Behavior in Japan," NBER Chapters,in: Structural Impediments to Growth in Japan, pages 155-190 National Bureau of Economic Research, Inc.
- Albert Ando & Dimitrios Christelis & Tsutomu Miyagawa, 2003. "Inefficiency of Corporate Investment and Distortion of Savings Behavior in Japan," NBER Working Papers 9444, National Bureau of Economic Research, Inc.
- Ueda, Kazuo & Yoshikawa, Hiroshi, 1986. "Financial Volatility and the q Theory of Investment," Economica, London School of Economics and Political Science, vol. 53(29), pages 11-27, February.
- Ando, Albert K, et al, 1974. "On the Role of Expectations of Price and Technological Change in an Investment Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(2), pages 384-414, June.
- Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-1038, October.
- Nobuhiro Kiyotaki & John Moore, 1997. "Credit Chains," ESE Discussion Papers 118, Edinburgh School of Economics, University of Edinburgh. Full references (including those not matched with items on IDEAS)