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Investment behaviour in Europe : a comparative analysis

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  • Michel CATINANT

    (Commission of the European Communities)

  • Richard CAWLEY

    (Commission of the European Communities)

  • Fabienne ILZKOVITZ

    (Commission of the European Communities)

  • Alexander ITALIANER

    (Commission of the European Communities)

  • Matthias MORS

    (Commission of the European Communities)

Abstract

The focus of this article is the comparison of the relative influence of different determinants of investment (demand, the relative price of capital and labour, and profit) for five large European countries and the United States. The investment equations are derived from production functions, either putty-putty or putty-clay, in the context of a disequilibrium model. The comparison of annual and quarterly estimates (after aggregation in a equivalent annual model) improves the evaluation of the precision of the parameter estimates. In all these countries, in accordance with the accelerator effect, demand is the dominant influence in the short term, fading away in the medium term. In contrast, profit is not a predominant influence except in the medium term. Its role thus seems to result from the effect of expectations on investment profitability rather than from short run selffinancing constraints. With respect to factor substitution, the analysis confirms that this is only weakly linked to changes in the relative price of capital and labour.

Suggested Citation

  • Michel CATINANT & Richard CAWLEY & Fabienne ILZKOVITZ & Alexander ITALIANER & Matthias MORS, 1988. "Investment behaviour in Europe : a comparative analysis," Discussion Papers (REL - Recherches Economiques de Louvain) 1988032, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvre:1988032
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