In this paper, we use industry data from Japan to examine the joint behavior of investment and hiring. We estimate factor adjustment costs in industries and focus on the industrial difference in such costs. Our analysis reveals that heavy industries such as steel and transport equipment need relatively large adjustment costs. A comparison between the U.S. and Japan reveals that the ratio of labor adjustment costs in total adjustment costs tends to be higher in Japan. Our findings are useful in considering the mechanism of factor adjustment costs.
JEL Classification Numbers: E22, E24, J23Keywords: joint estimation of investment and hiring, substitutability, complementarity, industry-level adjustment costs * I am very grateful to Hiroshi Teruyama and Sebastien Lechevalier for their helpful comments and suggestions. All errors are on my own.
In this article, I test both the real and the financial frictions in the Japanese firm investments using structural approach. The real represents the nonconvex capital adjustment costs, and the financial means the financing constraints. These two factors have been studied for a long time, but rarely analysed simultaneously. Through this analysis, I find the following results. First, both these two factors affect Japanese firm investments. Second, convex adjustment costs parameter is estimated at a very small level. Third, this small convex adjustment costs lead to the model introduced in Wang and Wen (2012), which insists that the firm investments are determined by the upper bound of the borrowing constraints.
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