How resilient is the investment climate in Australia? Unpacking the driving factors

Koczyrkewycz, Michael, Chaiechi, Taha, and Beg, Rabiul (2022) How resilient is the investment climate in Australia? Unpacking the driving factors. In: Community Empowerment, Sustainable Cities, and Transformative Economies. pp. 31-48. From: BEMAS: 1st International Conference in Business, Economics, Management, and Sustainability, 2-3 July 2021, Cairns, QLD, Australia.

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Abstract

A resilient economy is the ultimate aspiration of Government authorities and legislators. Economic recovery, one of the cornerstones of economic resilience, measures the speed at which a system recovers from an exogenous and adverse shock. This paper focuses on the resilience of private sector investment within Australia to test its adaptability and absorbability against external shocks. This paper utilises a Kaleckian-Post Keynesian approach to investment, whereby capacity utilisation, profit share, interest rates, and productivity growth are contributing factors. Research, however, has provided evidence that the incorporation of financial development and fiscal policy within the investment model has been largely ignored within the literature. Accordingly, this paper incorporates such indicators to capture their role in modelling approaches. Using annual historical data from 1980 to 2015, this paper adopts a Vector Error Correction Model (VECM), Impulse Response Functions (IRF) and Variance Decompositions (VD) to examine investment’s resilience against external disturbances. Results show that both long and short-run unidirectional causality between investment and the explanatory variables was evident, by identifying cointegrating vectors. The results confirm that government expenditure is the more powerful mechanism of the two, suggesting that a permanent incorporation into the model should be taken seriously. A simulated onetime shock upon the explanatory variables towards investment shows volatile and positive long-lasting reactions, with no sign of returning to pre-shock levels in the long-run. The results showed the changes in profit and the private sector’s productive capacity are the most important indicators capable of explaining variations in private sector investment decisions in Australia.

Item ID: 71296
Item Type: Conference Item (Research - E1)
ISBN: 978-981-16-5259-2
Keywords: Economic resilience, Adaptability, Speed of recovery, Investment, Kaleckian-Post Keynesian
Copyright Information: © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022
Date Deposited: 23 Jan 2022 22:40
FoR Codes: 38 ECONOMICS > 3802 Econometrics > 380205 Time-series analysis @ 50%
38 ECONOMICS > 3803 Economic theory > 380302 Macroeconomic theory @ 50%
SEO Codes: 15 ECONOMIC FRAMEWORK > 1502 Macroeconomics > 150203 Economic growth @ 50%
15 ECONOMIC FRAMEWORK > 1502 Macroeconomics > 150209 Savings and investments @ 50%
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