Economics, Econometrics and Finance
7 years ago

Replacement rate drives US business investment behavior, shaping economic growth.

RePEc: Research Papers in Economics
Behavior of business investment in the USA under variable and proportional rates of replacement
George C. Bitros, M. Ishaq Nadiri

Paper Summary

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Business investment behavior in the USA was studied from 1947 to 2015. Two models were tested, with Model A showing that the replacement rate strongly influences investment decisions. This model also provides useful insights for short-term and long-term investment dynamics, as well as robust estimates for the substitution of capital for labor and output. Model B, which assumes a constant replacement rate, performed well only for the period 1947-1960 due to stable replacement investment during that time.