Essays on public investment. private investment and foriegn investments

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Economies have three investors: public investors, private investors and the foreign investors. This dissertation examines the response of each investor to economic shocks in the United States (US). Chapter 1 employs an over-identified, structural vector auto-regression (SVAR), examining the effects of gross, fixed government investment on private sector employment, consumption, and fixed nonresidential investment. An increase in government fixed investment likely causes a decrease in private sector economic activity. Government defense investment appears as the primary non-stimulant. Specifically, a one standard deviation shock to total government investment permanently increases government investment by 2.5%, and permanently reduces private sector investment by 1% by 5 quarters later. A one standard deviation shock to government defense investment, however, increases defense investments by 5% and permanently reduces private sector employment and investment. The final chapter examines the effect of a one standard deviation shock to exchange rates, inflation and interest rates on inflows of foreign direct investment (FDI) and sales of US securities abroad. We use two sets of 4-variable, over-identified SVAR's: one for FDI and one for securities. A one standard deviation shock to inflation reduces foreign direct investment inflows, but a positive shock to the interest rate reduces purchases of US securities. Shocks to FDI are independent of exchange rate shocks, securities may be indirectly affected by exchange rate shocks (although, they are directly affected by exchange rate shocks), and shocks to inflows lead to an appreciation in the dollar. Our results are stronger when we control for structural breaks in the data. Finally, our empirical model helps to explain the unusually large of FDI inflow from 1979:4 to 1982:3.

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