Investment frictions reduce, delay or protract investment expenditure that is necessary for firms to capture growth opportunities. Using an investment model with capital adjustment costs, this article estimates the gap betweenChina’s actual and frictionless aggregate output. It applies the method of simulated moments to a fully structural investment model on a panel of Chinese firms and takes i...

Dividends are taxed at both the corporate and personal levels in the United States. This double taxation of dividends may distort investment efficiency. Partly motivated by this consideration, the US Congress enacted the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) in 2003. This act reduced the tax rates on dividends and capital gains, and eliminated the wedge between these two tax ra...

De Long and Summers (1991) began a literature examining the impact of equipment investment on growth. In this paper we examine such a relationship for developing countries by considering imports of equipment from advanced countries as our measure of equipment investment for a sample of 55 developing countries. We examine whether the level of human capital in a country affects its ability to ben...

Foreign portfolio investment is threatened by the risk of default and repudiation, while direct foreign investment isthreitened by the risk of expropriation. These two contractual forms of investment can differ substantially in: (I) the amount of capital they can transfer from abroad to capital-importing countries; (2) the shadow cost of capital and (3) their implications for the tax policy of ...

Should capital and labor be taxed, and if so how when individuals’labor and capital income are subject to uninsurable idiosyncratic risks? In a two period general equilibrium model with production, we first show that reducing investment is welfare improving if households are homogeneous enough ex ante. On the other hand, when the degree of heterogeneity is suffi ciently high a welfare improveme...

We develop a tractable two-country overlapping generations model and show analytically that the cross-country differences in financial development help explain three recent empirical facts characterizing international capital flows: financial capital flows from relatively poor to relatively rich countries while FDI flows in the opposite direction; net capital flows are from poor to rich countri...

Let X ∈ R denote a random stock market return vector, where Xj is the value of a one unit investment in stock j at the end of the trading day. We require that Xj ≥ 0 for j = 1, 2, . . . , m, that is, an investor cannot lose more than the invested capital. Let b, bj ≥ 0, ∑m j=1 bj = 1, denote a portfolio, that is, an allocation of investor’s capital across the investment alternatives. Let B deno...

We examine how inv estment in human capital affects the U.S. economy using a three-sector growth model. Investment in human capital is produced in a constant returns to scale Education sector that has capital, labor, student time and intermediates as inputs. The perfectly foresighted household determines investment in physical capital while the government determines the rate of Education invest...

In this paper we analyze the pattern of returns to capital in formal and informal manufacturing sector in Ethiopia using a rich panel dataset of formal sector manufacturing firms for the period 1996-2006 and two rounds of repeated cross-sectional data from the urban informal sector firms. Returns to capital in the informal sector are higher than that of the formal sector potentially explaining ...