Intangible Capital Formation, International Equity Investments, and Output Synchronization

Guido Baldi and Andre Bodmer

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: We analyze the eects of intangible investment on international out- put synchronization. Using a dynamic stochastic general equilibrium model, we nd that an increase in the importance of intangible cap- ital leads to a higher degree of output comovement across countries. Therefore, countries in which intangible capital is more important are better suited to economic integration, such as forming a monetary union. This oers an insightful perspective on the potential relation between the considerable dierences in intangible capital among Euro- zone members and the discussion surrounding the Eurozone as a sub- optimal currency area. A high stock of intangible capital also tends to attract foreign equity investments, in particular foreign direct in- vestments. We nd that cross-border equity holdings in tangible and intangible capital further increase the degree of output synchroniza- tion. Our results imply that policy reforms to incentivize higher intan- gible capital formation and cross-border equity investments may not only foster economic growth but also improve the functioning of the monetary policy in the Eurozone.

Keywords: International Business Cycles; Investment; Cross-country Correlations; Intangible Capital (search for similar items in EconPapers)
JEL-codes: E22 E32 F41 (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-dge and nep-mac
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