An Empirical Study of Sectoral-Level Capital Investments in New Zealand

Razzak, Weshah (2013): An Empirical Study of Sectoral-Level Capital Investments in New Zealand. Forthcoming in: New Zealand Treasury Working Papers (2014)

Abstract

I extend the Glick and Rogoff (1995) aggregate time-series, empirical, intertemporal model of country-investment (and the current account) to a sectoral-level, and estimate it for New Zealand. I fit the model to panel data of eleven industries from 1988-2009. The sectoral-level investment growth is a function of lagged investment level, sector-specific TFP shocks, country-specific TFP shocks, and global TFP shocks. The estimates seem robust to government spending shocks and Terms of Trade shocks.

• Item Type: MPRA Paper
• Language: English
• Keywords: Investments, sectoral-level, TFP shocks, panel data
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy

References

Abel, A. And O. Blanchard, 1986, The Present Value of Profits and Cyclical Movements in Investment, Econometric 54 (March), 244-73.

Acemoglu, D. And J-S Pischke, 1999, Minimum Wages and on-the-Job Training, NBER Working Paper No. 7184.

Arato, H., and K. Yamada, 2012, Japan’s Intangible Capital and Valuation of Corporations in Neoclassical Framework, Review of Economic Dynamics 15, 459-478.

Barro, Robert J., 1981, Output Effects of Government Purchases, Journal of Political Economy 89, 1086-1121.

Baxter, M. And M. Crucini, 1992, Business Cycle and the Asset Structure of Foreign Trade, Federal Reserve bank of Minneapolis- Institute for Empirical Macroeconomics Discussion Paper No. 59.

Barsky R. and Eric R. Sims, 2009, News Shocks," NBER Working Papers 15312, National Bureau of Economic Research, Inc.

Cassino, E., 2012, Is Tradable GDP a Useful Indicator? Memo, New Zealand Treasury, Wellington.

Christiano, L., M. Eichenbaum, and C. Evans, 2005, Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy, Journal of Political Economy 113, 1-45.

Claus, I., Aaron Gill, Boram Lee and Nathan McLellan, 2006, An Empirical Investigation of Fiscal Policy in New Zealand, New Zealand Treasury Working Paper 06/08.

Eberly, J., S. Robelo, and N. Vincent, 2012, What Explains the Lagged-Investment Effect? Journal of Monetary Economics 59, 370-380.

Evens, C., 1992, Productivity Shocks and Real Business Cycles, Journal of Monetary Economics, Vol. 29, issue 2, 191-208.

Frankel, J. And A. Razin, 1987, Fiscal Policies and the World Economy, Cambridge, MA: MIT Press.

Glick, R. and K. Rogoff, 1995, Global versus Country-Specific Productivity Shocks and the Current Account, Journal of Monetary Economics 35 (February), 159-92.

Grimes, A., 2009, Capital intensity and welfare: traded and non-trade sector determinants, New Zealand Economic Papers, vol. 43(1), 21-39.

Hall, R., 1978, Stochastic Implications of Life-Cycle Permanent Income Hypothesis: Theory and Evidence, Journal of Political Economy 86 (October), 971-87. Hunt, B., 2009, The Declining Importance of Tradable Goods Manufacturing in Australia and New Zealand: How Much Can Growth Theory Explain? IMF Working Paper No. 16.

Laabas, B. and W. A. Razzak, 2011, Economic Growth and the Quality of Human Capital, MPRA Working Paper, Munich.

Lopez, R. A., 2005, “Trade and Growth: Reconciling the Macroeconomic and Microeconomic Evidence,” Journal of Economic Surveys, Vol. 19 No.4, 623-648.

McGrattan, E. R. And E. C. Prescott, 2000, Is the Stock Market Overvalued? Quarterly Review of Federal Reserve Bank of Minneapolis, 20-40.

McGrattan, E. R., and E. C. Prescott, 2004, The 1929 Stock Market: Irving Fisher Was Right, International Economic Review 45, 991-1009.

McGrattan, E. R., and E. C. Prescott, 2005, Taxes, Regulations, and the Value of U.S. and U.K. Corporations, Review of Economic Studies, 72, 767-796.

McGrattan, E.R. and E. C. Prescott, 2010, Technology Capital and the U.S. Current Account, American Economic Review 100, 1493-1522.

McGrattan, E.R., and E. C. Prescott, 2011, Unmeasured Investment and the Puzzling Boom in the 1990ss, American Economic Journal: Macroeconomics 2, 88-123.

Meese, R., 1980, Dynamic Factor Demand Schedules for Labor and Capital under Rational Expectations, Journal of Econometrics 14 (September), 141-158. Nickell, S., 2003, Employment and Taxes, CESIFO Working Paper No.1109, (December).

Obstfeld, M., 1986, Capital Mobility and the World Economy: Theory and Measurement, Carnegie-Rochester Conference on Public Policy 24, 55-104.

Olivei, G., 1999, Productivity Shocks, Investments, and the Real Interest Rate, Federal Reserve Bank of Boston, Working Paper No. 99-2.

Parkyn, O. and T. Vehbi, 2013, The Effects of Fiscal Policy in New Zealand: Evidence from a VAR Model with Debt Constraint, New Zealand Treasury Working Paper (forthcoming). Prescott, E. C., 1997, Needed: A Theory of Total Factor Productivity, Federal Reserve Bank of Minneapolis Staff Report No. 242.

Prescott, E. C., 2004, Why Do Americans Work So Much More Than Europeans? Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 28, No.1, 2-3.

Razzak, W., 2007, “Explaining the Gaps in Labour Productivity in Some Developed Countries: New Zealand, Australia, The United States and Canada, 1988-2004,” Applied Econometrics and International Development, Vol. 7-2, 196-232.

Sachs, J., 1981, The Current Account and Macroeconomic Adjustment in the 1970s, Brookings Papers on Economic Activity 12, 201-268.

Shapiro, M., 1986, Investment, Output and the Cost of Capital, Brookings Papers on Economic Activity 1, 111-152. Shimer, R., 2009, Convergence in Macroeconomics: The Labor Wedge, American Economic Journal Macroeconomics, Vol. 1 No. 1 (January), 280-297.