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Investment Frictions and the Aggregate Output Loss in China
Author(s) -
Wu Guiying Laura
Publication year - 2015
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12064
Subject(s) - economics , investment (military) , china , aggregate (composite) , aggregate expenditure , aggregate data , capital (architecture) , panel data , econometrics , capital investment , monetary economics , macroeconomics , finance , medicine , history , materials science , archaeology , pathology , politics , political science , law , composite material
Investment frictions reduce, delay or protract investment expenditure that is necessary for firms to capture growth opportunities. Using a capital adjustment costs framework, this article estimates the gap between China'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 into account potential unobserved heterogeneities and measurement error in the data. The estimated capital adjustment costs imply that if Chinese firms had faced a lower level of adjustment costs such as in the US, China's aggregate output would be 25% higher.
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