scholarly journals Are Capital Goods Tariffs Different?

2020 ◽  
Vol 20 (61) ◽  
Author(s):  
Sergii Meleshchuk ◽  
Yannick Timmer
Keyword(s):  
Natural Experiment ◽  
Rate Increase ◽  
Relative Price ◽  
Capital Goods ◽  
Trade Reform ◽  
Labor Share ◽  
Investment Rate ◽  
Investment Rates ◽  
Tariff Rates

In this paper we demonstrate the importance of distinguishing capital goods tariffs from other tariffs. Using exposure to a quasi-natural experiment induced by a trade reform in Colombia, we find that firms that have been more exposed to a reduction in intermediate and consumption input or output tariffs do not significantly increase their investment rates. However, firms’ investment rate increase strongly in response to a reduction in capital goods input tariffs. Firms do not substitute capital with labor, but instead also increase employment, especially for production workers. Reduction in other tariff rates do not increase investment and employment. Our results suggest that a reduction in the relative price of capital goods can significantly boost investment and employment and does not seem to lead to a decline in the labor share.

scholarly journals Relative Prices and Relative Prosperity

2007 ◽  
Vol 97 (3) ◽  
pp. 562-585 ◽  
Author(s):  
Chang-Tai Hsieh ◽  
Peter J Klenow
Keyword(s):  
Real Income ◽  
Relative Price ◽  
Relative Prices ◽  
Income Levels ◽  
Poor Countries ◽  
Investment Rates ◽  
Tariff Rates ◽  
Low Efficiency ◽  
Investment Goods ◽  
Real Investment

The positive correlation between real investment rates and real income levels across countries is driven largely by differences in the price of investment relative to output. The high relative price of investment in poor countries is due to the low price of consumption goods in those countries. Investment prices are no higher in poor countries. Thus, the low real investment rates in poor countries are not driven by high tax or tariff rates on investment. Poor countries, instead, appear to be plagued by low efficiency in producing investment goods and in producing consumer goods to trade for them. (JEL E22, E23, O16, O47)

scholarly journals The Rise and Fall of India’s Relative Investment Price: A Tale of Policy Error and Reform

2022 ◽  
Vol 14 (1) ◽  
pp. 146-178
Author(s):  
Alok Johri ◽  
Md Mahbubur Rahman
Keyword(s):  
Import Substitution ◽  
Relative Price ◽  
Capital Goods ◽  
Point Reduction ◽  
Tariff Rates ◽  
Import Restrictions ◽  
The Impact ◽  
Indian Data

India’s relative price of investment rose 44 percent from 1981 to 1991 and fell 26 percent from 1991 to 2006. We build a simple DGE model, calibrated to Indian data, in order to explore the impact of capital import substitution policies and their reform post-1991 in accounting for this rise and fall. Our model delivers a 23 percent rise before reform and a 31 percent fall thereafter. GDP per effective labor was 3 percent lower in 1991 compared to 1981 due to import restrictions on capital goods. Their removal, and a 71 percentage point reduction in tariff rates, raised GDP per effective labor permanently by 20 percent. (JEL E22, E23, F13, O11, O16, O19)

scholarly journals Determinants of private investment in Egypt: an empirical analysis

2019 ◽  
Vol 4 (3) ◽  
pp. 257-266
Author(s):  
Sahar Shawky Sallam
Keyword(s):  
Foreign Exchange Market ◽  
Negative Impact ◽  
Positive Impact ◽  
Private Investment ◽  
Exchange Market ◽  
Capital Goods ◽  
Content Type ◽  
Investment Rate ◽  
External Finance ◽  
Q Model

Purpose This paper aims to study the determinants of private investment in Egypt while accounting for uncertainty associated with financing decisions of the firm using time series analysis over the period 1982-2015. The analysis is based on Tobin’s (1969) Q-theory of investment. The variables used in the empirical model are investment rate, average q index, prices of capital goods, internal finance and external finance. Design/methodology/approach This research is concerned with the model specification of a dynamic Average Q model. In that respect, the current research describes the data, presents the empirical methodology and estimates the Average Q model of investment and obtains the results. The empirical procedures and results of studying the average Q model. It includes testing for the unit root in the time series, vector error correction model (VECM) and cointegration long run analysis, and finally estimations of the model under uncertainty and empirical results. Findings Stochastic shocks to the determinants of private investment in Egypt have their impact on investment rate. The representation of impulse response in VECM shows that a one standard deviation shock to the value of the firm has a positive impact on investment rate. Stochastic shocks to both internal finance and external finance have slightly positive response from investment rate. Also, a stochastic shock to investment rate has a positive yet declining response from itself. However, a stochastic shock to prices of capital goods has a negative impact on investment rate. The representation of variance decomposition in VECM shows that investment rate is positively affected yet at a declining rate by a one standard deviation shock in both internal and external finance during the period 1982-2015. Also, a stochastic shock in the value of the firm or in the prices of capital goods has a slightly positive impact on investment rate. Originality/value Investment and capital accumulation are the main vehicles for economic growth and development. There have been fluctuations in Egypt’s investment rates since mid-1970s due to variations in saving rates. Thus, it is important to present some policy implications that could potentially assist the enhancement of the Egyptian economy. In that respect, the estimated results of the empirical model show that changes in the prices of capital goods in Egypt are significant factors that have negative impact on investment rate. Prices of imported capital goods in Egypt are affected by foreign exchange market conditions in the form of significant changes in the pound exchange rate. Thus, foreign exchange market reforms, as adopted recently in the Egyptian economy and improvements in trade balance, are important steps to alleviate obstacles that hinder investment. Regarding the source of finance, the estimated results showed that changes in both internal and external finance have a positive impact on investment rate. In this case, it is the firm’s decision to choose the method of financing its investment depending on factors such as its market value, institutional size and capacity and the opportunity cost of the funds used in financing the required investment.

scholarly journals Employment effects of trade reform in the Vietnamese banking industry

2020 ◽  
Author(s):  
AISDL
Keyword(s):  
Financial Services ◽  
Labour Supply ◽  
Banking Industry ◽  
Labour Force ◽  
Relative Price ◽  
Total Employment ◽  
Trade Reform ◽  
Skilled Labour ◽  
Long Run ◽  
Unskilled Labour

In response to the call for evidence of sectoral employment impacts of services trade reform, the paper examines how trade liberalisation in the Vietnam’s banking industry would change employment between sectors and total employment under in two macroeconomic settings: fixed versus variable labour supply. Using the FTAP-VN model and GTAP 7 Database, the paper finds that potential trade reform in Vietnam’s banking industry could have significant impacts on employment across industries in the economy regardless of the labour supply assumptions. Apart from the employment relocation effect as in the fixed labour supply, trade reform with a variable labour supply would expand jobs in all industries, increasing total employment by 6.3%. Trade reform would most benefit employment in the financial services itself and the industries with close linkages with the financial sector and facing the highest reduction in the relative price of labour to capital. In any cases, services would gain the most in terms of job creation from the trade reform. Services would also absorb most of the increased labour supply, followed by manufacturing and agriculture and mining. With a fixed labour supply, trade reform would encourage a substitution of unskilled labour for skilled labour across industries, placing skilled labour in a relatively disadvantaged position in the short run. In the short and median run, in order to avoid a shortage of skilled labour and consequent pressure on wages, Vietnam would need to invest in education and training to create a better skilled labour force, particularly in banking and finance. With a variable labour supply, in the long-run, the pressure on wage increase and substitution of skilled labour for unskilled labour could be mitigated with the transformation of unskilled labour into skilled labour and the increasing labour supply.

scholarly journals Investment Demand and Structural Change

Econometrica ◽  
2021 ◽  
Vol 89 (6) ◽  
pp. 2751-2785 ◽  
Author(s):  
Manuel García-Santana ◽  
Josep Pijoan-Mas ◽  
Lucciano Villacorta
Keyword(s):  
Capital Accumulation ◽  
Developing Economies ◽  
Value Added ◽  
Relative Price ◽  
Investment Rate ◽  
Investment Demand ◽  
Consumption Goods ◽  
Sectoral Composition ◽  
The One ◽  
Investment Goods

We study the joint evolution of the sectoral composition and the investment rate of developing economies. Using panel data for several countries in different stages of development, we document three novel facts: (a) the share of industry and the investment rate are strongly correlated and follow a hump‐shaped profile with development, (b) investment goods contain more domestic value added from industry and less from services than consumption goods do, and (c) the evolution of the sectoral composition of investment and consumption goods differs from the one of GDP. We build a multi‐sector growth model to fit these patterns and provide two important results. First, the hump‐shaped evolution of investment demand explains half of the hump in industry with development. Second, asymmetric sectoral productivity growth helps explain the decline in the relative price of investment goods along the development path, which in turn increases capital accumulation and promotes growth.

Watersheds and Turning Points: Conjectures on the Long-Term Impact of Civil War Financing

1974 ◽  
Vol 34 (3) ◽  
pp. 636-661 ◽  
Author(s):  
Jeffrey G. Williamson
Keyword(s):  
Civil War ◽  
Price Change ◽  
Turning Points ◽  
Capital Formation ◽  
Relative Price ◽  
Capital Goods ◽  
Saving Rates ◽  
Long Term Impact ◽  
Investment Goods

What accounts for the “epochal” changes in capital formation shares and capital goods' prices during the 1860's? The pages following document an epochal rise in American gross saving rates centered on the Civil War decade. They also establish a symmetrical episodic shift in the relative price of manufactured durable investment goods. Not only did the American investment share in GNP rise dramatically (and permanently) between the 1850's and 1870's, but the relative price of capital goods declined sharply over the same period. This relative price change was pronounced and it was never again repeated in a subsequent century of development.

scholarly journals The Price of Capital Goods

2019 ◽  
Vol 19 (134) ◽  
pp. 1 ◽  
Author(s):  
Weicheng Lian ◽  
Natalija Novta ◽  
Evgenia Pugacheva ◽  
Yannick Timmer ◽  
Petia Topalova
Keyword(s):  
Developing Economies ◽  
Emerging Market ◽  
Relative Price ◽  
Trade Integration ◽  
Capital Goods ◽  
The Past ◽  
Time Period ◽  
Cross Country ◽  
Investment Growth ◽  
Additional Channel

Over the past three decades, the price of machinery and equipment fell dramatically relative to other prices in advanced and emerging market and developing economies. Using cross-country and sectoral data, we show that the decline in the relative price of tangible tradable capital goods provided a significant impetus to the capital deepening that took place during the same time period. The broad-based decline in the relative price of machinery and equipment, in turn, was driven by the faster productivity growth in the capital goods producing sectors relative to the rest of the economy, and deeper trade integration, which induced domestic producers to lower prices and increase their efficiency. Our findings suggest an additional channel through which rising trade tensions and sluggish productivity could threaten real investment growth going forward.

Capital-Skill Complementarity and the Skill Premium in a Quantitative Model of Trade

2013 ◽  
Vol 5 (2) ◽  
pp. 72-117 ◽  
Author(s):  
Fernando Parro
Keyword(s):  
Technical Change ◽  
Quantitative Model ◽  
Trade Costs ◽  
Relative Price ◽  
Skill Premium ◽  
Unskilled Labor ◽  
Capital Goods ◽  
Trade Model ◽  
Skilled And Unskilled Labor ◽  
The Impact

Technological change has reduced the relative price of capital goods. Reductions in trade costs make it cheaper to import capital goods. With capital-skill complementarity, both can increase the skill premium. I construct a general-equilibrium trade model with capital-skill complementarity to study the impact of changing worldwide trade costs and technologies on the skill premium. The impacts of trade costs and technical change are comparable, especially in developing countries, and much larger than Stolper-Samuelson effects. I find that both skilled and unskilled labor gain from trade, and that larger gains from trade are associated with larger increases in the skill premium. (JEL E22, F11, F16, J24, O33)

scholarly journals On Economic Policies of Unemployment in Europe

2005 ◽  
Vol 54 (4) ◽  
pp. 775-789
Author(s):  
Theodore Pelagidis
Keyword(s):  
Economic Policy ◽  
Interest Rate ◽  
Unemployment Rate ◽  
Real Interest Rate ◽  
Rate Increase ◽  
Slow Growth ◽  
Economic Policies ◽  
Jobless Growth ◽  
Investment Rates ◽  
Unemployment Problem

This article deals with the unemployment problem in Europe. While the prevailing explanations sources of unemployment such as jobless growth, rigid labour markets and the process of globalization are rejected, it is argued that technological backwardness, slow growth and investment rates are responsible for the high European unemployment rate. A change in the mix of economic policy implemented in Europe is proposed in order to decelerate real interest rate, increase investments, GDP and employment.

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