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Does a Soft Macroeconomic Environment Induce Restructuring on the Microeconomic Level during the Transition Period? Evidence from Investment Behavior of Czech Enterprises

Lubomir Lizal

No 235, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: The paper analyzes investment behavior of industrial enterprises in the period immediately following price and foreign trade liberalization in the Czech Republic. It also focuses on the effect of "soft" macroeconomic environment on the microeconomic decisions. A dynamic investment function with symmetric adjustment cost function based on the Euler equation has been estimated. The derived and estimated investment function accounts for export sales in order to determine whether firms evaluate production for domestic and foreign markets differently, i.e, use the advantage of an undervalued currency. The estimation was conducted on two-year firm-level panel data from 1992 and 1993. The first major result of the empirical analysis suggests that there is no evidence that firms treat domestic sales and exports differently in the context of the adjustment cost function. The second remarkable finding contradicts the common view that firms in the transitional environment have short-term horizons. Both these findings could be interpreted as strong evidence against the idea of economic policy helping firms within a temporary soft macroeconomic environment. No evidence was found against the applicability of the constant returns to scale assumption on the Cobb-Douglas production function within the analyzed framework.

Keywords: investment; enterprises; adjustment costs; tansition; soft budgeting (search for similar items in EconPapers)
JEL-codes: D21 D24 D92 E22 E61 F19 G31 P21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-mac and nep-tra
Date: 1999-06-01
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https://deepblue.lib.umich.edu/bitstream/handle/2027.42/39621/wp235.pdf

Related works:
Working Paper: Does a Soft Macroeconomic Environment Induce Restructuring on the Microeconomic Level during the Transition Period? Evidence from Investment Behavior of Czech Enterprises (2001) Downloads
Working Paper: Does a Soft Macroeconomic Environment Induce Restructuring on the Microeconomic Level during the Transition Period? Evidence from Investment Behavior of Czech Enterprises (1999) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:wdi:papers:1999-235

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