Firm-Level Investment in France and the United States: An Exploration of What We Have Learned in...

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NBER WORKING PAPER SERIES FIRM-LEVEL INVESTMENT IN FRANCE AND THE UNITED STATES: AN EXPLORATION OF WHAT WE HAVE LEARNED IN TWENTY YEARS Jacques Mairesse Bronwyn H. Hall Benoit Mulkay Working Paper 7437 http://www.nber.org/papers/w7437 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 December 1999 We are grateful to the late Robert Eisner, Steve Bond and two referees for helpful comments on earlier versions of this paper. The reader of this paper will see that out “modern” (“vingt ans apres”) analysis confirms the understanding of firm investment behavior that Eisner analyzed so well long ago, using less technical but no less insightful language. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research. © 1999 by Jacques Mairesse, Bronwyn H. Hall, and Benoit Mulkay. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.

Transcript of Firm-Level Investment in France and the United States: An Exploration of What We Have Learned in...

NBER WORKING PAPER SERIES

FIRM-LEVEL INVESTMENT IN FRANCE AND THE UNITED STATES:

AN EXPLORATION OF WHAT WE HAVE LEARNED IN TWENTY YEARS

Jacques MairesseBronwyn H. HallBenoit Mulkay

Working Paper 7437http://www.nber.org/papers/w7437

NATIONAL BUREAU OF ECONOMIC RESEARCH1050 Massachusetts Avenue

Cambridge, MA 02138December 1999

We are grateful to the late Robert Eisner, Steve Bond and two referees for helpful comments on earlier versionsof this paper. The reader of this paper will see that out “modern” (“vingt ans apres”) analysis confirms theunderstanding of firm investment behavior that Eisner analyzed so well long ago, using less technical but no lessinsightful language. The views expressed herein are those of the authors and not necessarily those of theNational Bureau of Economic Research.

© 1999 by Jacques Mairesse, Bronwyn H. Hall, and Benoit Mulkay. All rights reserved. Short sections oftext, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit,including © notice, is given to the source.

Firm-Level Investment in France and the United-States:An Exploration of What We Have Learned in Twenty YearsJacques Mairesse, Bronwyn H. Hall, and Benoit MulkayNBER Working Paper No. 7437December 1999JEL No.E22, C33, O32

ABSTRACT

Our two related goals in this paper are the following: Firstly and mainly, we want to examine the

effects of major changes in modelling strategy and econometric methodology, over the past twenty years,

on estimation of firm-level investment equations using panel data. Secondly, we try to assess whether the

differences in the estimated investment equations, as between recent years and ten to twenty years go in

the French and U.S. Manufacturing industries, are “real” and economically meaningful. Thus our paper

consists of a series of comparisons: a simple accelerator-profit specification versus one with error

correction, traditional between- and within-firm estimation versus GMM estimation, the investment behavior

of French firms versus that of U.S. firms, and investment behavior in recent years versus ten to twenty years

ago. Although the important econometric advances of the past twenty years have been far from being as

successful as we had hoped for, we do find some significant improvement in the specification, estimation

and interpretation of firm investment equations; we also fin some real changes in the investment behavior

of French and U.S. firms during these twenty years.

Jacques Mairesse Bronwyn H. HallInstitut National de la Statistique et des Associate Professor of EconomicsEtudes Economiques (INSEE) 549 Evans Hall, #3880CREST University of California-Berkeley15, Boulevard Gabriel PERI Berkeley, CA 94720-388092245 MALAKOFF CEDEX and Nuffield College, Oxford, IFS, FRANCE NBERand NBER [email protected]@ensae.fr

Benoit MulkayUniversite des Antilles et de la GuyaneCampus Saint Denis BP 792 97337 CAYENNE CEDEX and CEREGMIA

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Table 1 : Descriptive Statistics - France & U.S.

FRANCE U.S.1971 - 1979 (441 Firms) 1971 - 1979 (407 Firms)

Median Mean St. Dev. Minimum Maximum Median Mean St. Dev. Minimum Maximum

E (number) 628 1,511 2,364 17 16,539 9,186 24,135 56,416 180 853,000

S (MF or M$) 60.1 175.2 306.2 1.4 3,369.7 278.5 821.1 2,210.3 4.9 37,575.5

K (MF or M$) 24.0 74.2 146.1 0.6 1,238.1 90.2 400.5 1,160.4 0.7 16,999.3

I (MF or M$) 2.4 8.3 18.5 0.0 284.4 11.9 55.8 177.8 0.0 3,250.7

K / S 0.3922 0.4757 0.2981 0.0369 2.7759 0.3614 0.4395 0.2779 0.0634 2.6804

I / S (%) 3.58% 4.99% 5.13% 0.00% 90.79% 4.43% 5.64% 4.65% 0.19% 85.16%

I / K (%) 9.46% 12.04% 10.00% 0.00% 141.95% 12.74% 14.38% 8.56% 0.47% 111.00%

OPINC / K (%) 23.40% 27.82% 21.51% -50.64% 212.39% 32.59% 37.61% 23.58% -51.45% 193.51%

S Growth (%) 4.46% 4.04% 14.27% -81.47% 70.29% 5.27% 4.31% 12.28% -61.57% 61.30%

FRANCE U.S.1985 - 1993 (486 Firms ) 1985 - 1993 (482 Firms )

Median Mean St. Dev. Minimum Maximum Median Mean St. Dev. Minimum Maximum

E (number) 552 1,446 5,027 78 91,049 5,100 19,914 51,849 58 876,800

S (MF or M$) 220.2 794.1 3,558.3 12.3 66,332.7 501.9 2,411.6 7,294.7 5.2 110,677.9

K (MF or M$) 82.4 352.2 1,736.7 1.2 29,528.8 213.3 1,536.1 5,230.9 1.6 93,799.2

I (MF or M$) 8.3 37.6 192.5 0.0 3,479.2 25.5 182.9 667.6 0.0 13,279.8

K / S 0.3954 0.4306 0.2296 0.0321 2.0344 0.4759 0.5475 0.3130 0.0600 2.1568

I / S (%) 3.36% 4.31% 3.90% 0.00% 58.45% 4.91% 6.11% 4.87% 0.12% 63.33%

I / K (%) 9.18% 11.24% 8.94% 0.00% 111.64% 11.21% 12.93% 9.12% 0.46% 101.08%

OPINC / K (%) 21.37% 25.01% 22.81% -93.49% 259.42% 26.40% 31.27% 24.01% -57.34% 269.16%

CF / K (%) 13.84% 15.15% 16.24% -107.07% 160.49% 17.50% 19.71% 17.77% -80.87% 157.04%

S Growth (%) 1.98% 1.89% 11.93% -59.76% 69.75% 1.83% 1.38% 13.49% -68.08% 66.50%

Variables : E : Number of Employees; S : Total Sales (in millions 1985 FRF or USD);K : Capital Stock at the begining of the year (in millions 1985 FRF or USD);I : Capital expenditures (in millions 1985 FRF or USD);OPINC. : Operating Income; CF : Cash-Flow = Gross income after taxes and interest.

MHM For Annales Page : 1 / 9Date : 11/7/99 / 6:06 PM

File : Annales5us.xls(Table 1)

Table 2 : Accelerator Model for I/KComparing Eisner and New Estimates for the U.S.

Between, Total, and Within Estimates

EISNER (1961-1968) U.S. (1974-1979) U.S. (1985-1993)Between Total Within Between Total Within Between Total Within

# obs. (# firms) 533 533 4518 533 4518 533 407 407 2442 407 2442 407 482 482 4338 482 4338 482

Ds (t) 0.150 (.064) 0.094 (.002) 0.068 (.008) 0.304 (.081) 0.204 (.016) 0.134 (.020) 0.400 (.077) 0.179 (.013) 0.116 (.013)Ds (t-1) 0.095 (.075) 0.097 (.009) 0.067 (.008) 0.352 (.124) 0.144 (.012) 0.053 (.020) 0.172 (.110) 0.083 (.009) 0.017 (.011)Ds (t-2) -0.005 (.072) 0.086 (.008) 0.057 (.007) 0.031 (.123) 0.099 (.013) 0.018 (.019) 0.008 (.112) 0.095 (.009) 0.037 (.009)Ds (t-3) 0.182 (.064) 0.076 (.008) 0.039 (.008) -0.078 (.098) 0.075 (.014) 0.014 (.018) 0.018 (.115) 0.057 (.008) 0.011 (.008)Ds (t-4) -0.026 (.065) 0.073 (.008) 0.042 (.008) 0.009 (.079) 0.018 (.021) -0.034 (.021) 0.079 (.104) 0.060 (.009) 0.021 (.009)Ds (t-5) 0.158 (.070) 0.069 (.009) 0.032 (.008) 0.132 (.089) 0.026 (.013) -0.007 (.014) -0.101 (.120) 0.034 (.008) 0.000 (.008)Ds (t-6) 0.129 (.062) 0.046 (.008) 0.016 (.008) -0.014 (.060) 0.027 (.013) 0.014 (.014) 0.255 (.074) 0.056 (.009) 0.016 (.009)

Sum of sales coeff. 0.683 (.053) 0.541 (.021) 0.322 (.028) 0.736 (.048) 0.594 (.039) 0.193 (.080) 0.831 (.035) 0.564 (.024) 0.217 (.034)

CF/K (t) -0.143 (.157) -0.043 (.025) 0.052 (.024) -0.225 (.065) -0.058 (.018) 0.043 (.024) -0.387 (.073) -0.020 (.012) 0.065 (.015)CF/K (t-1) 0.301 (.166) 0.226 (.026) 0.282 (.024) 0.261 (.061) 0.127 (.018) 0.188 (.025) 0.425 (.074) 0.126 (.012) 0.193 (.015)

Sum of Π coeff. 0.157 (.023) 0.182 (.010) 0.334 (.022) 0.035 (.010) 0.069 (.009) 0.231 (.032) 0.038 (.011) 0.105 (.010) 0.258 (.019)

Std.err. (R-squared) n.a. 0.354 n.a. 0.255 n.a. 0.188 0.0337 0.538 0.0686 0.283 0.0638 0.380 0.0300 0.679 0.0769 0.289 0.0725 0.367

Eisner reffers to Eisner [1978a], Unbalanced Sample, Table 2.3, p.119 : Column (3) for Between, (4) for Total, and (2) for Within. Cfr. also Eisner [1978b], Table 4.6, p.88. All equations do not include time dummies, nor industry dummies.For new estimates, heteroskedastic-consistent standard errors.

MHM For Annales Page : 2 / 9Date : 11/7/99 / 6:06 PM

File : Annales5us.xls(Table 2)

Table 3 : Accelerator Model for I/KComparing Oudiz and New Estimates for France

Between, Total, and Within Estimates

OUDIZ (1971-1975) FRANCE (1971-1975) FRANCE (1985-1993)Between Total Within Between Total Within Between Total Within

# obs. (# firms) 124 124 620 124 620 124 441 441 2205 441 2205 441 486 486 4374 486 4374 486

Ds (t) 0.196 (.090) 0.097 (.021) 0.047 (.021) 0.200 (.064) 0.142 (.019) 0.104 (.021) 0.227 (.094) 0.212 (.018) 0.178 (.018)Ds (t-1) 0.060 (.107) 0.080 (.025) 0.021 (.027) 0.158 (.079) 0.140 (.017) 0.071 (.023) 0.025 (.136) 0.109 (.013) 0.075 (.013)Ds (t-2) 0.030 (.153) 0.096 (.024) 0.048 (.025) 0.144 (.083) 0.105 (.017) 0.065 (.020) 0.217 (.150) 0.101 (.014) 0.061 (.014)Ds (t-3) 0.135 (.135) 0.042 (.022) 0.006 (.022) 0.042 (.066) 0.046 (.019) 0.022 (.022) 0.253 (.109) 0.076 (.012) 0.030 (.013)

Sum of sales coeff. 0.421 (.043) 0.315 (.052) 0.122 (.064) 0.544 (.050) 0.433 (.036) 0.264 (.056) 0.722 (.043) 0.498 (.029) 0.344 (.034)

Π/K (t) -0.283 (.174) 0.051 (.037) 0.183 (.040) -0.278 (.065) 0.020 (.023) 0.146 (.029) -0.131 (.077) -0.047 (.037) -0.046 (.020)Π/K (t-1) 0.474 (.171) 0.181 (.037) 0.276 (.040) 0.331 (.063) 0.082 (.021) 0.174 (.027) 0.182 (.076) 0.116 (.037) 0.110 (.018)

Sum of Π coeff. 0.191 (.043) 0.232 (.078) 0.459 (.064) 0.052 (.014) 0.102 (.015) 0.320 (.039) 0.052 (.015) 0.069 (.012) 0.064 (.017)

Std.err. (R-squared) n.a. 0.374 n.a. 0.206 n.a. 0.155 0.0487 0.343 0.1033 0.158 0.0993 0.223 0.0355 0.479 0.0802 0.195 0.0753 0.290

Oudiz reffers to Oudiz [1978], Table 3, p.530 (Balanced Sample, Dataset 2 : Large and Medium size Firms) : Column 8 for Between, 9 for Total, and 10 for Within.All equations do not include time dummies, nor industry dummies.For new estimates, heteroskedastic-consistent standard errors.

MHM For Annales Page : 3 / 9Date : 11/7/99 / 6:06 PM

File : Annales5us.xls(Table 3)

Table 4 : Accelerator Model for I/KComparing Mairesse-Dormont and New Estimates for France and the U.S.

Between and Total Estimates

FRANCE M-D (1970-1979) FRANCE (1971-1979) FRANCE (1985-1993)Between Total Between Total Between Total

# obs. (# firms) 307 307 3070 307 441 441 3969 441 486 486 4374 486

Sum of sales coeff. 0.349 (.049) 0.284 n.a. 0.502 (.044) 0.445 (.024) 0.534 (.042) 0.478 (.030)Sum of Π coeff. 0.136 (.017) 0.175 n.a. 0.048 (.012) 0.099 (.011) 0.072 (.016) 0.066 (.012)

Std.err. (R-squared) 0.030 0.820 0.071 0.248 0.035 0.367 0.090 0.195 0.037 0.421 0.080 0.204

U.S. M-D (1970-1979) U.S. (1971-1979) U.S. (1985-1993)Between Total Between Total Between Total

# obs. (# firms) 422 422 4220 422 407 407 3663 407 482 482 4338 482

Sum of sales coeff. 0.349 (.035) 0.196 n.a. 0.639 (.041) 0.497 (.028) 0.617 (.035) 0.556 (.025)Sum of Π coeff. 0.088 (.011) 0.135 n.a. 0.059 (.009) 0.089 (.009) 0.052 (.013) 0.104 (.010)

Std.err. (R-squared) 0.025 0.717 0.048 0.318 0.030 0.556 0.073 0.280 0.035 0.555 0.077 0.291

M-D reffers to Mairesse-Dormont [1985], Table 3 for Between and Table 2 for Total (I/C equations for France and for U.S.)All equations include industry dummies but not time dummies.For new estimates, heteroskedastic-consistent standard errors.

MHM For Annales Page : 4 / 9Date : 11/7/99 / 6:06 PM

File : Annales5us.xls(Table 4)

Table 5 : Error Correction Accelerator Model for I/KComparing the Estimation Periods

Total and Within Estimates

France (1971 - 1979) France (1985 - 1993) U.S. (1971 - 1979) U.S. (1985 - 1993)Total Within Total Within Total Within Total Within

# observations (# firms) 3969 441 3969 441 4374 486 4374 486 3663 407 3663 407 4338 482 4338 482

I/K (-1) 0.214 (.025) 0.021 (.025) 0.286 (.025) -0.003 (.026) 0.253 (.036) 0.003 (.031) 0.238 (.025) -0.102 (.025)

Ds (t) 0.089 (.014) 0.070 (.014) 0.188 (.018) 0.179 (.019) 0.135 (.016) 0.135 (.018) 0.149 (.014) 0.146 (.014)Ds (t-1) 0.061 (.012) 0.054 (.015) 0.070 (.014) 0.100 (.015) 0.069 (.016) 0.062 (.018) 0.044 (.010) 0.077 (.011)

k-s (t-2) -0.023 (.005) -0.282 (.031) -0.013 (.003) -0.208 (.016) 0.000 (.005) -0.300 (.034) -0.008 (.003) -0.218 (.016)s (t-2) -0.001 (.001) -0.106 (.014) 0.003 (.001) -0.086 (.011) 0.001 (.001) -0.063 (.016) 0.002 (.001) -0.091 (.012)

CF/K (t) 0.035 (.017) 0.053 (.018) -0.044 (.020) -0.067 (.019) 0.024 (.018) 0.021 (.021) 0.016 (.013) 0.010 (.014)CF/K (t-1) 0.064 (.019) 0.090 (.019) 0.084 (.019) 0.070 (.017) 0.108 (.029) 0.169 (.026) 0.090 (.012) 0.105 (.012)CF/K (t-2) -0.023 (.015) 0.027 (.015) 0.018 (.015) 0.012 (.014) -0.046 (.019) 0.012 (.016) 0.014 (.013) 0.032 (.014)

Long Run Sales 0.937 (.045) 0.623 (.041) 1.209 (.081) 0.584 (.046) -2.956 (62.684) 0.792 (.048) 1.289 (.106) 0.582 (.038)Long Run CF 3.222 (1.030) 0.601 (.114) 4.465 (1.703) 0.076 (.087) -273.702 ######## 0.674 (.119) 15.674 (6.281) 0.673 (.120)

Std.error (R-squared) 0.0863 0.256 0.0815 0.336 0.0769 0.260 0.0706 0.376 0.0718 0.297 0.0660 0.405 0.0763 0.300 0.0680 0.444

All equations include time dummies but not industry dummies.Heteroskedastic-consistent standard errors.

MHM For Annales Page : 5 / 9Date : 11/7/99 / 6:06 PM

File : Annales5us.xls(Table 5)

Table 6Error Correction Model for I/K

GMM Estimates (First Differences Instrumented by Levels)

FIRST INSTRUMENTS SET SECOND INSTRUMENTS SETInstruments : I/K(t-3 to t-6), Ds(t-3 to t-6), Π/K(t-3 to t-6). Instruments : I/K(t-3 to t-6), Ds(t-3 to t-6), Π/K(t-3 to t-6).

Predetermined Variables : None. Predetermined Variables : D(k-s)(t-2), D(s)(t-2), D( Π/K)(t-2).

France U.S. France U.S.1971-79 1985-93 1971-79 1985-93 1971-79 1985-93 1971-79 1985-93

# observations 3969 4374 3663 4338 3969 4374 3663 4338# firms 441 486 407 482 441 486 407 482# instruments 99 117 99 117 102 120 102 120

I/K (t-1) -0.130 (.072) -0.205 (.106) 0.068 (.112) -0.255 (.101) -0.166 (.073) -0.064 (.055) 0.006 (.103) -0.099 (.064)

Ds (t) -0.034 (.066) 0.177 (.086) 0.094 (.053) 0.163 (.056) -0.058 (.058) 0.162 (.080) 0.052 (.046) 0.190 (.053)Ds (t-1) 0.053 (.065) 0.041 (.111) 0.008 (.060) 0.165 (.064) 0.058 (.061) 0.038 (.096) 0.046 (.046) 0.173 (.048)

k-s (t-2) -0.353 (.109) -0.210 (.058) -0.372 (.109) -0.245 (.058) -0.351 (.077) -0.193 (.049) -0.257 (.088) -0.241 (.057)s (t-2) -0.152 (.065) -0.150 (.078) -0.116 (.060) -0.026 (.039) -0.135 (.056) -0.147 (.063) -0.071 (.048) -0.041 (.030)

Π/K (t) 0.093 (.066) -0.197 (.079) 0.059 (.064) -0.114 (.074) 0.081 (.064) -0.197 (.075) 0.086 (.062) -0.138 (.073)Π/K (t-1) 0.101 (.049) 0.046 (.068) 0.154 (.048) 0.058 (.063) 0.032 (.036) 0.094 (.045) 0.053 (.039) 0.080 (.045)Π/K (t-2) -0.027 (.027) 0.055 (.058) -0.084 (.036) 0.038 (.040) 0.029 (.018) 0.020 (.022) -0.005 (.020) -0.011 (.022)

Long Run Sales 0.569 (.189) 0.286 (.514) 0.687 (.140) 0.895 (.153) 0.616 (.164) 0.241 (.451) 0.722 (.157) 0.829 (.115)Long Run Π 0.471 (.282) -0.456 (.249) 0.349 (.204) -0.075 (.396) 0.406 (.184) -0.430 (.186) 0.523 (.296) -0.286 (.325)

Wald test for Sales (DF=3) 6.796 (.079) 6.445 (.092) 10.511 (.015) 15.182 (.002) 14.115 (.003) 5.147 (.161) 7.692 (.053) 16.783 (.001)Wald test for Π (DF=3) 10.704 (.013) 6.863 (.076) 14.400 (.002) 4.252 (.235) 8.977 (.030) 7.085 (.069) 11.157 (.011) 9.898 (.019)Wald test for lag 2 (DF=3) 6.788 (.079) 1.865 (.601) 31.433 (.000) 3.493 (.322) 27.549 (.000) 39.293 (.000) 51.758 (.000) 40.624 (.000)

Sargan test (p-value 105.958 (.039) 116.556 (.123) 92.462 (.202) 99.155 (.505) 108.968 (.041) 116.132 (.178) 99.218 (.139) 118.936 (.135)

LM1 test : m(1) (p-value) -4.287 (.000) -3.179 (.001) -4.272 (.000) -3.053 (.002) -4.091 (.000) -7.581 (.000) -3.812 (.000) -7.690 (.000)LM2 test : m(2) (p-value) -2.913 (.004) -1.224 (.221) -0.387 (.699) -1.915 (.056) -4.787 (.000) -0.036 (.971) -3.739 (.000) -0.372 (.710)LM3 test : m(3) (p-value) 0.455 (.649) -1.825 (.068) -0.044 (.965) -1.038 (.299) 0.583 (.560) -1.355 (.175) -0.370 (.711) -0.308 (.758)

All equations include time dummies but not industry dummies, First-step Estimates, Heteroskedastic-consistent standard errors.

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File : Annales5us.xls(Table 6)

Table 7 (a)Error Correction Model for I/K

Validity of Instruments in GMM Estimation : R-squared and F-tests

FIRST INSTRUMENTS SET SECOND INSTRUMENTS SETInstruments : I/K(t-3 to t-6), Ds(t-3 to t-6), Π/K(t-3 to t-6). Instruments : I/K(t-3 to t-6), Ds(t-3 to t-6), Π/K(t-3 to t-6).

Predetermined Variables : None. Predetermined Variables : D(k-s)(t-2), D(s)(t-2), D( Π/K)(t-2).

France U.S. France U.S.1971-79 1985-93 1971-79 1985-93 1971-79 1985-93 1971-79 1985-93

# observations 3969 4374 3663 4338 3969 4374 3663 4338# firms 441 486 407 482 441 486 407 482# instruments 99 117 99 117 102 120 102 120

R² F-test R² F-test R² F-test R² F-test R² F-test R² F-test R² F-test R² F-test

I/K (t-1) 0.094 4.090 0.069 2.713 0.130 5.427 0.061 2.358 0.228 11.283 0.376 21.532 0.251 11.844 0.399 23.561

Ds (t) 0.149 6.927 0.046 1.783 0.279 14.080 0.120 4.948 0.152 6.867 0.048 1.817 0.300 15.111 0.139 5.721Ds (t-1) 0.147 6.826 0.044 1.691 0.308 16.154 0.163 7.104 0.608 59.456 0.464 30.999 0.603 53.623 0.533 40.514

k-s (t-2) 0.162 7.636 0.090 3.610 0.272 13.587 0.161 6.995 1.000 1.000 1.000 1.000s (t-2) 0.208 10.346 0.082 3.293 0.299 15.517 0.198 8.964 1.000 1.000 1.000 1.000

Π/K (t) 0.128 5.799 0.083 3.316 0.168 7.363 0.087 3.472 0.175 8.110 0.104 4.146 0.219 9.887 0.099 3.903Π/K (t-1) 0.186 9.045 0.118 4.901 0.284 14.441 0.112 4.603 0.269 14.105 0.204 9.173 0.344 18.455 0.229 10.545Π/K (t-2) 0.322 18.747 0.202 9.291 0.412 25.490 0.223 10.434 1.000 1.000 1.000 1.000

Value of F distribution : for p-value=0.05 : F(100,4000)=1.28 ; for p-value=0.01 : F(100,4000)=1.43 ; for p-value=0.001 : F(100,4000)=1.62 .

MHM For Annales Page : 7 / 9Date : 11/7/99 / 6:06 PM

File : Annales5us.xls(Table 7a)

Table 7 (b)Error Correction Model for I/K

Validity of Instruments in GMM Estimation : Partial R-Squared and F-Tests

FIRST INSTRUMENTS SET SECOND INSTRUMENTS SETInstruments : I/K(t-3 to t-6), Ds(t-3 to t-6), Π/K(t-3 to t-6). Instruments : I/K(t-3 to t-6), Ds(t-3 to t-6), Π/K(t-3 to t-6).

Predetermined Variables : None. Predetermined Variables : D(k-s)(t-2), D(s)(t-2), D( Π/K)(t-2).

France U.S. France U.S.1971-79 1985-93 1971-79 1985-93 1971-79 1985-93 1971-79 1985-93

# observations 3969 4374 3663 4338 3969 4374 3663 4338# firms 441 486 407 482 441 486 407 482# instruments 99 117 99 117 102 120 102 120

R² F-test R² F-test R² F-test R² F-test R² F-test R² F-test R² F-test R² F-test

I/K (t-1) 0.060 2.535 0.045 1.721 0.041 1.573 0.048 1.830 0.064 2.598 0.065 2.501 0.045 1.655 0.082 3.149

Ds (t) 0.047 1.949 0.027 1.037 0.082 3.261 0.043 1.626 0.056 2.267 0.029 1.070 0.090 3.482 0.047 1.750Ds (t-1) 0.061 2.584 0.028 1.064 0.096 3.866 0.058 2.234 0.079 3.281 0.033 1.203 0.108 4.261 0.068 2.595

k-s (t-2) 0.078 3.337 0.107 4.394 0.099 3.990 0.139 5.890 0.282 15.028 0.138 5.700 0.208 9.261 0.155 6.499s (t-2) 0.090 3.929 0.095 3.839 0.117 4.803 0.160 6.926 0.111 4.786 0.119 4.848 0.179 7.700 0.207 9.259

Π/K (t) 0.078 3.320 0.054 2.078 0.074 2.895 0.057 2.207 0.100 4.232 0.063 2.421 0.080 3.069 0.062 2.361Π/K (t-1) 0.135 6.143 0.057 2.232 0.115 4.747 0.073 2.857 0.182 8.505 0.119 4.840 0.160 6.741 0.106 4.184Π/K (t-2) 0.230 11.817 0.112 4.636 0.199 9.017 0.159 6.903 0.641 68.388 0.769 118.838 0.591 50.981 0.553 43.859

YEAR 1972 - 1986 0.865 252.951 0.842 194.924 0.625 60.711 0.541 42.890 0.954 800.495 0.909 357.722 0.755 108.905 0.560 45.168YEAR 1973 - 1987 0.771 133.001 0.852 211.869 0.542 42.994 0.567 47.668 0.946 669.752 0.973 1288.513 0.570 46.798 0.600 53.112YEAR 1974 - 1988 0.747 116.517 0.886 283.826 0.560 46.349 0.649 67.260 0.928 491.917 0.909 357.483 0.584 49.563 0.662 69.297YEAR 1975 - 1989 0.449 32.157 0.807 153.030 0.606 55.872 0.790 136.586 0.481 35.461 0.828 171.703 0.627 59.259 0.843 189.763YEAR 1976 - 1990 0.419 28.432 0.766 120.271 0.544 43.385 0.705 86.767 0.487 36.312 0.819 161.997 0.597 52.179 0.733 97.275YEAR 1977 - 1991 0.366 22.750 0.686 80.002 0.451 29.933 0.618 58.952 0.742 110.288 0.772 121.057 0.689 78.215 0.663 69.766YEAR 1978 - 1992 0.554 49.039 0.757 114.366 0.704 86.355 0.457 30.676 0.654 72.434 0.816 158.563 0.740 100.234 0.506 36.313YEAR 1979 - 1993 0.480 36.495 0.582 51.124 0.675 75.414 0.633 62.688 0.727 102.081 0.627 60.049 0.702 83.219 0.747 104.506

Value of F distribution : for p-value=0.05 : F(100,4000)=1.28 ; for p-value=0.01 : F(100,4000)=1.43 ; for p-value=0.001 : F(100,4000)=1.62 . Not significant at 1 % level in Grey.

MHM For Annales Page : 8 / 9Date : 11/7/99 / 6:06 PM

File : Annales5us.xls(Table 7b)

Table 7 (c)Error Correction Model for I/K

Validity of Instruments in GMM Estimation : Canonical Correlations

FIRST INSTRUMENTS SET SECOND INSTRUMENTS SETInstruments : I/K(t-3 to t-6), Ds(t-3 to t-6), Π/K(t-3 to t-6). Instruments : I/K(t-3 to t-6), Ds(t-3 to t-6), Π/K(t-3 to t-6).

Predetermined Variables : None. Predetermined Variables : D(k-s)(t-2), D(s)(t-2), D( Π/K)(t-2).

France U.S. France U.S.1971-79 1985-93 1971-79 1985-93 1971-79 1985-93 1971-79 1985-93

# observations 3969 4374 3663 4338 3969 4374 3663 4338# firms 441 486 407 482 441 486 407 482# instruments 99 117 99 117 102 120 102 120

Corr. P-value Corr. P-value Corr. P-value Corr. P-value Corr. P-value Corr. P-value Corr. P-value Corr. P-value

Correlation #1 0.037 (.000) 0.023 (.455) 0.038 (.000) 0.036 (.000) 0.046 (.000) 0.024 (.409) 0.043 (.000) 0.040 (.000)Correlation #2 0.053 (.000) 0.026 (.221) 0.052 (.000) 0.039 (.000) 0.056 (.000) 0.030 (.089) 0.058 (.000) 0.058 (.000)Correlation #3 0.057 (.000) 0.033 (.012) 0.076 (.000) 0.051 (.000) 0.078 (.000) 0.051 (.000) 0.082 (.000) 0.070 (.000)Correlation #4 0.077 (.000) 0.039 (.000) 0.089 (.000) 0.062 (.000) 0.094 (.000) 0.076 (.000) 0.100 (.000) 0.083 (.000)Correlation #5 0.089 (.000) 0.050 (.000) 0.111 (.000) 0.074 (.000) 0.286 (.000) 0.254 (.000) 0.362 (.000) 0.209 (.000)Correlation #6 0.104 (.000) 0.062 (.000) 0.137 (.000) 0.095 (.000) 1.000 1.000 1.000 1.000Correlation #7 0.153 (.000) 0.212 (.000) 0.181 (.000) 0.146 (.000) 1.000 1.000 1.000 1.000Correlation #8 0.484 (.000) 0.448 (.000) 0.602 (.000) 0.495 (.000) 1.000 1.000 1.000 1.000

Not significant at 1% level in Grey

MHM For Annales Page : 9 / 9Date : 11/7/99 / 6:06 PM

File : Annales5us.xls(Table 7c)

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ef

Figure 1 : Change in Main VariablesMedian - French and U.S. Manufacturing (Balanced Samples)

Capital-to-Sales Ratio

0.20

0.30

0.40

0.50

0.60

68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93

France U.S.

Investment Rate : I(t)/K(t-1)

6%

8%

10%

12%

14%

16%

18%

20%

68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93

France U.S.

Sales Growth

-10%

0%

10%

20%

68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93France U.S.

Profit Rate

10%

20%

30%

40%

50%

60%

68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93

France (OP.INC.) France (Cash-Flow) U.S. (OP.INC.) U.S. (Cash-Flow)

MHM for Annales Page : 1 / 1Date : 11/7/99 / 6:02 PM

File : Annales5AppFig.xls(Figure 1)