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Investment Frictions and the Aggregate Output Loss in China

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  • Guiying Laura Wu

Abstract

type="main" xml:id="obes12064-abs-0001"> 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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  • Guiying Laura Wu, 2015. "Investment Frictions and the Aggregate Output Loss in China," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(3), pages 437-465, June.
    • Handle: RePEc:bla:obuest:v:77:y:2015:i:3:p:437-465
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    3. Tang, Le, 2021. "Investment dynamics and capital distortion: State and non-state firms in China," Journal of Asian Economics, Elsevier, vol. 73(C).

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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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