Investment Frictions and the Aggregate Output Loss in China

Guiying Wu ()

Oxford Bulletin of Economics and Statistics, 2015, vol. 77, issue 3, 437-465

Abstract: type="main" xml:id="obes12064-abs-0001">

Investment frictions reduce, delay or protract investment expenditure that is necessary for firms to capture growth opportunities. Using a capital adjustment costs framework, this article 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 firms and takes into account potential unobserved heterogeneities and measurement error in the data. The estimated capital adjustment costs imply that if Chinese firms had faced a lower level of adjustment costs such as in the US, China's aggregate output would be 25% higher.

Date: 2015
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Working Paper: Investment Frictions and the Aggregate Output Loss in China (2013)
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