Determinants of the Investment Rate in the Economy and Their Relevance in Entry Analysis

Beneke Avila, Francisco Eduardo

doi:10.1007/978-3-662-62347-3_5

Francisco Eduardo Beneke Avila⁴

Part of the book series: Munich Studies on Innovation and Competition ((MSIC,volume 14))

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Abstract

The issue of economic growth has been the focus of great attention in the economics literature for a long period of time. Based on the model developed by Solow, neoclassical growth theory predicts differences in growth rates based on, among other factors, a country’s propensity to invest. Levine and Renelt find empirical support for this prediction. As a result, there have been numerous works that seek to identify the determinants of investment rates. From the myriad of variables that have been studied, there have been efforts to identify the ones that are more robustly associated with economic performance. This literature has a special value for antitrust law and economics because the factors that influence a firm’s decision to invest are directly related to the decision of entering a market. Not taking them into account can lead to error costs in enforcement interventions.

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Notes

1.
Solow (1956).
2.
Mankiw et al. (1992), pp. 422–425.
3.
Levine and Renelt (1992), p. 947.
4.
See, for example: Sala-i-Martin et al. (2004), Levine and Renelt (1992), and Barro (1991).
5.
For an overview of common country characteristics relevant for competition law in different sub-regions in Sub-Saharan Africa, see Fox and Bakhoum (2019).
6.
It should also be pointed out that in most of the cases portrayed in Chap. 8 concerned national and sub-national markets. Many of the cases where in infrastructure industries such as telecommunications services and water provision, which tend to circumscribed to investments within national borders.
7.
Sala-i-Martin et al. (2004), p. 824; and Levine and Renelt (1992), p. 950.
8.
Ibid.
9.
See Gerber (2010) and De Leon (2009).
10.
Mauro (1995), p. 685.
11.
Ibid.
12.
Coase (1960).
13.
North (1989), p. 1319.
14.
Dixit and Pindyck (1994).
15.
See, for example: Barro (1991), Levine and Renelt (1992), Mauro (1995), Knack and Keefer (1995), Brunetti and Weder (1998), and Henisz (2000).
16.
Pande and Udry (2005), p. 17.
17.
See, for example: Bruno et al. (2011), where the authors exploit regional institutional variations within Russia to explain differences in entry rates; and Pamukçu et al. (2009), where the authors analyze the impact of the change in trade policy on entry rates in Turkey’s manufacturing sector.
18.
15 U.S.C § 78dd–1.
19.
Leff (1964), p. 10.
20.
Mauro (1995), p. 685.
21.
Leff (1964), pp. 10–11.
22.
Mauro (1995), p. 683.
23.
Id., p. 698.
24.
Id., pp. 699–700. Another study that finds a significant negative association between corruption and economic performance is Knack and Keefer (1995).
25.
Mauro (1995), p. 698.
26.
Wei (2000).
27.
Id., p. 5.
28.
Ibid.
29.
Brunetti and Weder (1998), p. 527.
30.
Id., p. 514.
31.
Ibid.
32.
Id., p. 527.
33.
Mauro (1995), p. 690.
34.
Id., p. 700.
35.
Asiedu and Freeman (2009).
36.
Id., p. 204.
37.
Id., pp. 204–205.
38.
Id., p. 204.
39.
Id., p. 207.
40.
Ibid.
41.
Id., p. 209.
42.
Gaviria (2002).
43.
Id., p. 250.
44.
Id., p. 252.
45.
Id., p. 262.
46.
Asiedu and Freeman (2009), p. 212.
47.
Id., at 204 and Gaviria (2002), p. 259.
48.
Mauro (1995), p. 697 (Table V).
49.
Alesina and Perotti (1996), p. 1205.
50.
Id., p. 1206.
51.
Feng (2001), p. 273.
52.
Id., p. 275.
53.
Barro (1991), p. 426.
54.
Levine and Renelt (1992), p. 946.
55.
Mauro (1995), p. 686.
56.
Brunetti and Weder (1998), p. 523.
57.
Aisen and Veiga (2013), p. 153.
58.
Feng (2001), p. 278 3.
59.
Id., p. 277.
60.
Alesina and Perotti (1996), pp. 1207–1208.
61.
Intelligence Unit, the Economist (2009). Political Instability Index: Vulnerability to Social and Political Unrest (Methodology). Available at http://viewswire.eiu.com/index.asp?layout=VWArticleVW3&article_id=874361472.
62.
Barro (1991), p. 432.
63.
Ibid.
64.
Levine and Renelt (1992), p. 950.
65.
Brunetti and Weder (1998), p. 522.
66.
Id., pp. 522–523.
67.
Aisen and Veiga (2013), p. 162.
68.
Ibid.
69.
Alesina and Perotti (1996), p. 1217.
70.
Id., pp. 1219–1223.
71.
Feng (2001), p. 283.
72.
Brunetti and Weder (1998), p. 529 (n. 15).
73.
Alesina and Perotti (1996), p. 1214.
74.
Aisen and Veiga (2013), p. 154.
75.
Brunetti and Weder (1998), p. 525.
76.
Ibid.
77.
Henisz (2000), pp. 3–4.
78.
Id., p. 1.
79.
Id., p. 5.
80.
Ibid.
81.
Ibid.
82.
Id., p. 23.
83.
15 U.S.C. §§ 12–17, 29 U.S.C §§ 52–53.
84.
See, for example, Brown Shoe Co., Inc. v. United States, 370 U.S. 294, 316 (1962).
85.
15 U.S.C. §§ 1–7.
86.
148 F.2d 416, 428 (1945).
87.
21 Cong. Record, 2457.
88.
Gerber (1994), p. 73.
89.
Streit (1992), p. 689.
90.
Carlton and Perloff (2005), p. 3.
91.
Id., at 23.
92.
Acemoglu et al. (2006).
93.
Id., pp. 38–39.
94.
Id., p. 39. See also Krusell and Ríos-Rull (1996).
95.
Tybout (2000), p. 16.
96.
Gauthier and Gersovitz (1997), pp. 416–417.
97.
Tybout (2000), pp. 13–14.
98.
Id. p. 29.
99.
The author, as many other theoretical and empirical works, uses the term lobby instead of interest groups. This can lead to a confusion of concepts, because the model incorporates the variable of political contributions, which may not be, strictly speaking, lobbying efforts. In other works, the term lobbying is distinguished from campaign donations. In this strand of the literature, lobby refers to activities aimed to influence already elected officials on specific policy outcomes. Therefore, in the present research, more general terms such as interest groups are preferred to lobbying organizations, and the term lobbying is used only in its strict meaning.
100.
Mitra (1999), p. 1130.
101.
Id., p. 1117.
102.
Krusell and Ríos-Rull (1996).
103.
Id., pp. 302–303.
104.
Id., p. 303.
105.
Mitra (1999), p. 1122.
106.
Id., pp. 1127–1128.
107.
Baumgartner et al. (2009).
108.
Id., at 23.
109.
Mitra (1999), p. 1126.
110.
Ibid.
111.
Id., p. 1131.
112.
Grossman and Helpman (1996), pp. 274–275.
113.
Mitra (1999), p. 1121.
114.
Grossman and Helpman (1996), p. 268.
115.
Bennedsen et al. (2011).
116.
Id., p. 18.
117.
Id. p. 23.
118.
Id., p. 18.
119.
Posner (2001), p. 24.
120.
Labeling such considerations as noneconomic is a recurrent theme with advocates of the Chicago School of Antitrust. The problem is, however, an economic one and vastly addressed in the political economy literature. To ignore this is to not recognize that the economics profession has certainly broader boundaries than those of price theory and industrial organization.
121.
Posner (2001), p. 25.
122.
Ibid.
123.
Posner (1970), p. 402.
124.
Dick (1996), p. 267.
125.
Bennedsen et al. (2011), p. 3.
126.
Id., p. 18.
127.
Id., pp. 19–20.
128.
Id., p. 20.
129.
Kerr et al. (2014).
130.
Id., pp. 6–7.
131.
Id., p. 8.
132.
Duso and Jung (2012).
133.
Id., pp. 181–184.
134.
Id., p. 194.
135.
Claessens et al. (2008).
136.
Id., pp. 558–559. The authors argue that a change in the rate of return of shares means that the market expects the contributing firms to obtain political favors that increase their profits. They justify their access to finance hypothesis on the peculiarities of the Brazilian financial industry where loans at competitive rates can only be obtained from state-controlled banks.
137.
Id., p. 559.
138.
Id., pp. 559–560.
139.
Id., pp. 566, 568–569, and 571–573 (tables 5–10).
140.
Bain (1956), p. 55.
141.
Id., p. 145.
142.
Stigler (1967), p. 292.
143.
Carlton and Perloff (2005), p. 80.
144.
Areeda et al. (2007), p. 81.
145.
Posner (2001), pp. 211–213.
146.
Demsetz (1982), p. 50.
147.
Levine (2002), pp. 400–401.
148.
Id., p. 401.
149.
The potential positive and negative effects of banks and stock markets on investment and economic performance is largely drawn from Ndikumana (2001).
150.
Love and Zicchino (2006), p. 190.
151.
Ndikumana (2001), p. 6.
152.
Pagano (1993), p. 615.
153.
Ndikumana (2001), p. 10.
154.
Id., p. 10.
155.
Rajan (1992), p. 1368.
156.
Wenger and Kaserer (1998), p. 504.
157.
Stiglitz (1985), pp. 145–146.
158.
Bhide (1993), p. 50.
159.
Lucas (1988), p. 6.
160.
Levine and Zervos (1998), p. 540.
161.
Ibid. See also Ndikumana (2001), p. 14.
162.
Xu (2000), p. 334.
163.
See King and Levine (1993).
164.
Levine and Zervos (1998), p. 542.
165.
Xu (2000), p. 334.
166.
Levine and Zervos (1998), pp. 540–541.
167.
Id, p. 540.
168.
Id., p. 538.
169.
Id., p. 546.
170.
Id., p. 554.
171.
Levine (2002), pp. 414–415; and Ndikumana (2001), pp. 224–226.
172.
Thornton (1994).
173.
Id., p. 42.
174.
Id., p. 46.
175.
Xu (2000), p. 337.
176.
Id., p. 341.
177.
Levine and Zervos (1998), pp. 544–545.
178.
Id., p. 546.
179.
Love and Zicchino (2006), p. 195; Ndikumana (2001), p. 18; and Becker and Sivadasan (2010), p. 2.
180.
Becker and Sivadasan (2010), p. 18; Ndikumana (2001), p. 17; and Levine and Zervos (1998), p. 544.
181.
Becker and Sivadasan (2010), p. 1.
182.
Ibid.
183.
Id., pp. 1–2.
184.
Id., p. 22.
185.
Id., pp. 20–22.
186.
Id., p. 2.
187.
Aghion et al. (2007).
188.
Id., p. 14.
189.
Id., p. 19.
190.
Id., pp. 20–21.
191.
Id., p. 14.
192.
Grossman and Helpman (1996), p. 268.
193.
Mankiw et al. (1992).
194.
Id., pp. 416–418.
195.
Romer (1994), p. 4.
196.
Solow (1956).
197.
Romer (1994), p. 4.
198.
Benhabib and Spiegel (1994), p. 155.
199.
See, for example: Lucas (1988); Grossman and Helpman (1991); and Aghion et al. (1998).
200.
Romer (1990), p. 79.
201.
Grier and Tullock (1989), p. 262.
202.
Benhabib and Spiegel (1994), p. 155.
203.
Ibid.
204.
Ibid.
205.
Id., p. 163.
206.
Ibid. (citing Lucas (1990)).
207.
Mauro (1995), p. 699.
208.
Ibid.
209.
Wei (2000), pp. 6–7.
210.
Id., p. 7.
211.
See for example Berger and Fisher (2013), p. 7. The authors find a high correlation between the educational attainment of the workforce and wages across states in the US.
212.
Brunetti and Weder (1998), pp. 518–519.
213.
Id., p. 518.
214.
Henisz (2000), p. 24.
215.
Id., p. 20.
216.
Id., p. 24.
217.
Mankiw et al. (1992), pp. 413–414. The authors use the data in Summers and Heston (1988). They divide it in three sub-samples: the first comprises all countries from these data set excluding oil producers were most of their income is conceived to be produced by extraction of resources and not added value. The second excludes countries whose data are considered unreliable or whose population is lower than one million. The third sample consists of the 22 OECD countries with population greater than one million.
218.
Mankiw et al. (1992), pp. 412–413.
219.
Benhabib and Spiegel (1994), p. 146.
220.
Id., p. 149.
221.
Id., pp. 144–145.
222.
Id., p. 158.
223.
Id., p. 159.
224.
Id., p. 161.
225.
Id., p. 162.
226.
Id., p. 164.
227.
Hanushek and Woessmann (2008), p. 629.
228.
Id., p. 638.
229.
Id., p. 658.
230.
Id., p. 639.
231.
Hanushek and Kimko (2000), p. 1197.
232.
Id., p. 1194.
233.
Sala-i-Martin (1996), p. 1020.
234.
Id., p. 1025.
235.
Abramovitz (1986), p. 386.
236.
Sala-i-Martin (1996), p. 1020.
237.
Id., pp. 1026–1027.
238.
Abramovitz (1986), p. 387.
239.
Id., p. 388.
240.
Id., p. 387.
241.
Krusell and Ríos-Rull (1996).
242.
Acemoglu et al. (2006).
243.
Abramovitz (1986), p. 394.
244.
Ibid.
245.
Sala-i-Martin (1996), pp. 1023–1025.
246.
Barro (1991), p. 407.
247.
Mankiw et al. (1992), p. 422.
248.
Id., p. 422.
249.
Id., p. 425.
250.
Sala-i-Martin (1996), p. 1028.
251.
Ibid.
252.
See, for example: Henisz (2000), p. 24; Sala-i-Martin et al. (2004), p. 827; Mauro (1995), pp. 699–702; and Levine and Renelt (1992), pp. 946–950.
253.
Mankiw et al. (1992), p. 423.
254.
Id., p. 428.
255.
Abramovitz (1986), p. 395.
256.
Levine and Renelt (1992), p. 959.
257.
Id., p. 945.

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Beneke Avila, F.E. (2021). Determinants of the Investment Rate in the Economy and Their Relevance in Entry Analysis. In: Market Entry and Competition Law in Latin America. Munich Studies on Innovation and Competition, vol 14. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-62347-3_5

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DOI: https://doi.org/10.1007/978-3-662-62347-3_5
Published: 14 January 2021
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-662-62346-6
Online ISBN: 978-3-662-62347-3
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