Investment behaviour in Europe: a comparative analysis

Michel Catinant, Richard Cawley, Fabienne Ilzkovitz, Alexander Italianer and Matthias Mors
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Michel Catinant: Commission of the European Communities
Richard Cawley: Commission of the European Communities
Alexander Italianer: Commission of the European Communities
Matthias Mors: Commission of the European Communities

No 1988032, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: The focus of this article is the comparison of the relative influence of different determinants of investment (demand, the relative price of capital and labour, and profit) for five large European countries and the United States. The investment equations are derived from production functions, either putty-putty or putty-clay, in the context of a disequilibrium model. The comparison of annual and quarterly estimates (after aggregation in a equivalent annual model) improves the evaluation of the precision of the parameter estimates. In all these countries, in accordance with the accelerator effect, demand is the dominant influence in the short term, fading away in the medium term. In contrast, profit is not a predominant influence except in the medium term. Its role thus seems to result from the effect of expectations on investment profitability rather than from short run selffinancing constraints. With respect to factor substitution, the analysis confirms that this is only weakly linked to changes in the relative price of capital and labour.

Pages: 48
Date: 1988-09-01
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