Upstream financial flows, intangible investment, and allocative efficiency

Haiping Zhang

Journal of Macroeconomics, 2022, vol. 72, issue C

Abstract: The recent decades have witnessed upstream financial flows and rising intangible investment. Given heterogeneous pledgeability, we find that financial inflows have opposite short-run and long-run effects on intangible–tangible investment composition and the efficiency of capital formation. By reducing the investment elasticity along the extensive margin, rising wealth inequality undermines the efficiency gains from financial inflows. Similarly, market frictions and policy distortions that hinder entrepreneurship may also reduce the investment elasticity. Thus, our mechanism offers a new perspective for understanding cross-country differences in intangible–tangible investment composition.

Keywords: Financial frictions; Heterogeneous pledgeability; Intangible capital; Investment elasticity; Wealth inequality (search for similar items in EconPapers)
JEL-codes: E22 E25 F41 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:72:y:2022:i:c:s0164070422000258

DOI: 10.1016/j.jmacro.2022.103425

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