Extent and intensity of investment with multiple capital goods
Author: Drakos, Konstantinos
Source: Applied Economics, Volume 44, Number 22, 1 August 2012 , pp. 2799-2810(12)
Abstract:Overall investment is the product of the number of capital goods for which triggering has occurred (the extensive or reductive margin) and the depth of investment per capital good (intensive margin). Based on a longitudinal plant-level data and using dynamic panel techniques we investigated the validity of the hypothesis that the intensity of investment increases as its extent increases. Our results indicate a strong linkage between the extent and intensity of investment decisions, finding which holds both for positive and negative investment decisions. This linkage suggests that the decision on how many capital types to initiate investment is closely connected to the decision regarding the depth of investment expenditures. Moreover, the intensity–extent derivative remains positive but its magnitude decreases with plant size, providing indirect evidence for higher complementarity between capital types for smaller plants.
Document Type: Research Article
Affiliations: Department of Accounting and Finance,Athens University of Economics and Business, 76 Patission StreetAthens 10434, Greece
Publication date: August 1, 2012