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Nataliya Krasnopeeva 1, Evgeniya Nazrullaeva1
  • 1 National Research University Higher School of Economics, 20 Myasnitskaya Str., Moscow, 101000, Russian Federation

Modeling the Influence of Fixed Capital Investment on Material Costs in U.S. Economic Activities, 1958–2005

2014. Vol. 18. No. 1. P. 102–132 [issue contents]
Do higher fixed capital investments lead to lower unit material costs in the manufacturing sector? Is there homogeneity across industries with respect to the relationship between material costs and investments? What is the underlying mechanism which can explain this relation ship? One of the possible mechanisms explaining the negative association between invest ments and costs is technological progress. In this paper we study whether fixed capital investments can lead not only to higher output in an industry, but also to lower material costs, and whether lower costs per unit of output are related to a technological replacement of fixed. This research problem has not been studied yet using the U.S. industry data. We study six main manufacturing industries in the U.S., based on the NAICS industrial classification, during the period 1958– 2005 (the source is the NBER–CES database). The database is unique as it contains price deflators for investments in fixed capital and for material costs. We also know that during the period under consideration there was an investment boom in the U.S. industry. We are modeling the relationship between investments and costs using the two types of models: vector autoregressive model (when the studied processes are stationary) and error correction model (when the processes are non-stationary). Vector autoregressive models allow to avoid explicit assumptions about the direction of causality between investments and costs. We also test and control for possible endogenous structural changes in the estimated models. Our results suggest that the effect of fixed capital investments is heterogeneous across industries: the statistically significant effect of investments exists only in two studied industries out of six (in textile industry and in machinery).

Citation: Krasnopeeva Nataliya Alexandrovna, Nazrullaeva Evgeniya Yur'evna (2014) Modelirovanie vliyaniya investitsiy v osnovnoy kapital na material'nye zatraty v otraslyakh promyshlennosti SShA v 1958–2005 gg. [Modeling the Influence of Fixed Capital Investment on Material Costs in U.S. Economic Activities, 1958–2005]. HSE Economic Journal, 1, pp. 102-132 (in Russian)
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