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Full-Text Articles in Industrial Organization
Lumpy Investment, Lumpy Inventories, Ruediger Bachmann, Lin Ma
Lumpy Investment, Lumpy Inventories, Ruediger Bachmann, Lin Ma
Research Collection School Of Economics
The link between the microenvironment (frictions and heterogeneity) and the macroeconomic dynamics of general equilibrium macromodels is influenced by exactly how general equilibrium closes the model. We make this observation concrete using the recent literature on how nonconvex capital adjustment costs influence aggregate investment dynamics. We introduce inventories into a two-sector lumpy investment model and find that nonconvex capital adjustment costs dampen and propagate investment impulse responses, more so than without inventories. With two means of transferring consumption into the future, fixed capital and inventories, the tight link between aggregate saving and fixed capital investment is broken.
Subsidies For Fdi: Implications From A Model With Heterogeneous Firms, Davin Chor
Subsidies For Fdi: Implications From A Model With Heterogeneous Firms, Davin Chor
Research Collection School Of Economics
This paper analyzes the welfare effects of subsidies to attract multinational corporations when firms are heterogeneous in their productivity levels. I show that the use of a small subsidy raises welfare in the FDI host country, with the consumption gains from attracting more multinationals exceeding the direct cost of funding the subsidy program through a tax on labor income. This welfare gain stems from a selection effect, whereby the subsidy induces only the most productive exporters to switch to servicing the host's market via FDI. I further show that for the same total subsidy bill, a subsidy to variable costs …