The conventional approach in the theory and econometrics of investment is the partition of gross capital investment in two components: expansion (or net) investment and replacement investment. This thesis examines the latter component. A critical assessment of the literature and the empirical evidence reveal that the prevailing view of replacement known as the "proportional replacement hypothesis" is incorrectly specified and unsatisfactory. / This thesis examines a variety of data brought together under the same focus for the first time and comes up with two important findings. First, firms maintain the operating capacity of their equipment not by replacing the whole of the machine but by replacing worn out or defective parts. The cost of new parts along with that of labour and materials incurred in restoring the operating efficiency of machines are known as "repair expenditures". Data on these expenditures have been collected by Statistics Canada in its investment survey since 1947. Although in effect replacement expenditures, these data are not capitalized by firms and hence do not appear in our conventional investment statistics. Although they account for a significant proportion of capital expenditures they are completely ignored in the theory and econometrics of replacement. Second, expansion and maintenance of production capacity are not the only purposes for which firms invest funds. They also invest for a variety of other purposes, such as modernization, upgrading, retooling, revamping and pollution abatement, for example. These activities lower unit costs of production and enhance the profitability of the firm by initiating or responding to changes in the structure of demand, technology, the prices of factor inputs or the market structure. Such capital expenditures entail changes in capital-output and capital-input specificity. As the real world is characterized by capital and output heterogeneity, structural change therefore implies structural investment. / Important policy implications arise from the above findings. Tax incentives may be more effectively utilized when targeted toward firms undertaking structural investment rather than either expansion or replacement. Since repair expenditures are not included in standard investment statistics, the level of investment spending is significantly higher than conventionally thought. Also our capital stock data, particularly net capital figures, may be more deficient than previously presumed.
| Identifer | oai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:QMM.75840 |
| Date | January 1988 |
| Creators | Matziorinis, Ken N. (Kenneth N.), 1954- |
| Publisher | McGill University |
| Source Sets | Library and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada |
| Language | English |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Format | application/pdf |
| Coverage | Doctor of Philosophy (Department of Economics.) |
| Rights | All items in eScholarship@McGill are protected by copyright with all rights reserved unless otherwise indicated. |
| Relation | alephsysno: 000733434, proquestno: AAINL48522, Theses scanned by UMI/ProQuest. |
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