Aggregate Investment Expenditures on Tradable and Nontradable Goods
IMF Working Papers, February 1, 2008
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Bibliographic details
- Authors: Rudolfs Bems
- Published: February 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451869071.001
Summary and key findings
- Aggregate investment expenditure shares on tradable and nontradable goods are very similar across countries and regions.
- The two expenditure shares have remained close to constant over time.
- The average expenditure share on nontradables varied between 0.54-0.62 over the 1960-2004 period.
- The relative price of nontradables correlates positively with income and exhibits large differences across space and time.
- These empirical findings offer a new restriction for two-sector models of the aggregate economy.
Empirical evidence and statistics
- Average expenditure share on nontradables: 0.54-0.62 (1960-2004).
- Time period analyzed (for the reported average): 1960-2004.
Interpretation and modeling implications
- The similarity and stability of expenditure shares across countries and over time suggest a parsimonious functional form for aggregating tradable and nontradable goods in investment.
- Combined with the positive correlation between the relative price of nontradables and income, the paper’s findings suggest that tradable and nontradable goods in investment can be modeled using the Cobb-Douglas aggregator.
- The reported empirical regularities provide a new restriction that two-sector aggregate models should satisfy.