Econometric Studies of Investment Behavior: A Survey.

IN THIS PAPER the reader will find a review of econometric studies of investment in fixed capital. A review of these studies through 1953 was given in 1957 by J. Meyer and E. Kuh [86], and a detailed review through 1960 was presented by R. Eisner and R. H. Strotz in I963 [36]. In this review we concentrate on recent research on time series of investment expenditures for individual firms and industries. Our point of departure is the flexibLe accelerator model of investment originated by H. B. Chenery [13, 1952] and L. M. Koyck [74, 1954]. In this model attention is focused on the time structure of the investment process. The desired level of capital is determined by long-run considerations. Changes in desired capital are transformed into actual investment expenditures by a geometric distributed lag function--the specification of desired capital has been the subject of a wide variety of alternative theories; the alternative theories do agree on the validity of the flexible accelerator mechanism. Our final objective in reviewing alternative models of investment behavior is to describe and evaluate the treatment of replacement investment. The first part of this review is devoted to studies of investment behavior by individual U.S. manufacturing firms. We focus attention on studies of time series on investment expenditures; time series analysis requires a detailed representation of the time structure of the investment process. These results can be compared directly with results from studies of industry groups. [ABSTRACT FROM AUTHOR]