Sustained investment surges

Abstract

Existing empirical studies have mainly focused on determinants of average investment levels. Instead, we investigate episodes of accelerated capital stock growth having a duration of eight years or longer. We find that episodes are relatively common, even in low-growth regions, but more so in middle-income and Asian countries. After identifying 175 episodes between 1950 and 2014, we employ probit analysis to explore their characteristics. Turning points in investment tend to be preceded by macroeconomic stability, real exchange rate undervaluation, and net capital outflows (especially portfolio outflows). We also find a negative correlation with the capital to output ratio and per capita GDP, and a positive correlation with a human capital index. Investment surges tend to be associated with changes in the trade balance and, to a (statistically) weaker extent, with structural change.

A Classical-Marxian Growth Model of Catching Up and the Cases of China, Japan, and India: 1980–2014

“…The rapid process of mechanization in these countries caused a fall in the profit rate to a level similar to or lower than the Unites States. This result is consistent with Libman, Montecino, and Razmi (2017). They pointed out that the higher the capital productivity, and therefore the profit rate, the higher the probability of an accelerated capital stock growth.…”

Capital inflows, sustained investment surges and the role of external economies of scale in a developing economy

“…The economy has experienced a sustained spurt of investment and CA deficits followed by surpluses along the path. This is consistent with the empirical findings of Libman et al (2019), who report that the trade balance initially declines and then, recovers during episodes of sustained investment surges.…”

“…Their econometric analysis, based on a sample of 181 countries, finds that while bond flows have a negative effect on annual GDP growth, non-bond flows have a positive effect. Empirical evidence on the determinants of sustained investment accelerations provided by Libman et al (2019) suggests that while other kinds of financial inflows reduce the probability of a country experiencing an episode of high investment, FDI inflows | 367 RAZMI may be an exception. The study also finds, based on nearly 190 episodes of sustained investment accelerations across the world, 3 that while the typical episode is initially accompanied by external account deficits, such deficits tend to vanish in their later stages.…”

The Real Exchange Rate and Development Theory, Evidence, Issues and Challenges

“…Other studies such as Rebelo and Vegh (1995) also find that RER appreciation leads to reduction in manufacturing value-added. Regarding long run investment, and Libman et al (2019) discover a positive and symmetric effect of lagged RER undervaluation on investment growth but mostly in the case of developing countries.…”