Inflation and Indivisible Investment in Developing Economies

• Tác giả: Maya Eden
• Ngôn ngữ: eng
• Ký hiệu phân loại: 338.9 Economic development and growth
• Thông tin xuất bản: World Bank Group, Washington, DC, 2014
• Bộ sưu tập: Tài liệu truy cập mở
• ID: 329140
• Chủ đề: 1. ACCESS TO CREDIT; 2. ACCESS TO SAVING; 3. AFFILIATED ORGANIZATIONS; 4. ANNUAL SALES; 5. CAPITAL INVESTMENT

Tóm tắt

In countries with limited access to finance, firms accumulate retained earnings to finance indivisible investment projects. McKinnon (1973) illustrates that when cash is used as a primary store of value, inflation may discourage investment as it increases the cost of accumulating retained earnings. This paper formalizes this argument in a dynamic framework and provides a simple calibration of the model that suggests sizable effects of inflation on investment. The mechanism is particularly relevant for small firms, as firms with lower cash flows must accumulate retained earnings for longer periods of time to meet the price of indivisible investment goods. Consistent with the model, empirical evidence suggests that inflation disproportionately reduces investment in small firms.