Developments in global inventory investment

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Abstract

This paper analyses some of the connections between macroeconomic inventory data and other GDP characteristics. Until now this issue has got relatively low interest, though we believe it can be important in understanding macroeconomic phenomena.

After a brief summary of previous research, six hypotheses are formulated regarding tendencies of the ratio of inventory investment to GDP and its relationship with the level of development, growth and fluctuations of GDP. Elementary statistical methods are applied on an OECD database, containing 14 of the most developed economies of the world. The analysis mostly supports the hypotheses, however—due to the limitations by the quality of the database and the methodology used—this support is not very reliable. This calls attention to the need for further research on the subject.

Section snippets

Introduction: Purpose and objectives of the study

Even though all economists agree that inventories are important indicators of the nature and dynamics of economic processes, research on the economics of inventories is still relatively scarce. Out of the three major questions of inventory research (namely, the level, structure and fluctuation of inventories), there is only one field where we can claim to have achieved really substantial results: studying inventory fluctuations. There is a good reason for the relative advancement of this

Background: Research on inventory trends

After rather sporadic studies of the economics of inventories (from which the works of Lundberg (1937) and Metzler (1941) are outstanding) the first major study dealing with issues related to our subject is Abramovitz (1950). His conclusions, well supported by statistical data, have had a long-term influence on inventory research in the decades to come. However, the 1950s were the high time of flourishing of operations research, so even economists like Kenneth Arrow published (very fundamental)

Scope, limitations and hypotheses of the research

Our research is aimed to examine a few fundamental questions of macroeconomic inventory behaviour.

Namely, it deals with

  • the trends and variances of aggregate inventory investments and

  • the connection between economic development, growth and inventory investments.

We believe that the indicator {inventory investment (in some publications “increase of stocks”) per GDP} is the most appropriate one for characterizing aggregate inventory behaviour of various countries, for two reasons:
  • It has a very

Inventory investment ratio, as a characterizing norm of economies

We share the view of Kornai 1971, Kornai 1980 that some macroeconomic indicators have a relatively stable “norm” for the various economies and periodic fluctuation goes on “around” this norm. The value of these norms is derived from some structural characteristics of the economy (like its institutional system, market and industry structure, level of economic development, etc.). These norms are standard for some period of development, then of course they can change—depending on the changes in

Inventory investment trends and fluctuations

Annual data of inventory investment/GDP are summarized in Appendix. The same data are plotted in Fig. 3, which of course cannot be used for identifying the trends of the individual countries, but very clearly shows that both the average and the standard deviation of the individual countries from this average shrink.

Fig. 3 indicates that both the linear and polynomial trends are decreasing. The polynomial trend gives a better fit, mainly because of the sharp decrease at the beginning of the

Inventories and country characteristics: Level of development, growth and volatility

The study of the influencing factors of inventory investments at the macroeconomic level should certainly start with looking at the level of development and the speed of growth of the country's economy as the most aggregate factor. In the following these two characteristics are examined. Since on the long run there is an obvious connection between the two, some common conclusions can be drawn.

Conclusion

Our paper's objective was to develop some theses about inventory investment trends across 14 countries and over a 30 year time period. The ambiguity of the data base and the relatively small sample size and the lack of research background on the subject made us to limit our approach to elementary statistical evaluation.

We had formulated six hypotheses for our analysis. The results are mostly supportive, but this support is not very often strong.

H1 is about the level of inventories as a

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