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How Resilient Is the Investment Climate in Australia? Unpacking the Driving Factors

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Community Empowerment, Sustainable Cities, and Transformative Economies

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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.

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Author information

Authors and Affiliations

  1. College of Business, Law and Governance, James Cook University, Cairns, QLD, Australia

    Michael Koczyrkewycz

  2. College of Business, Law and Governance, James Cook University, Townsville, QLD, Australia

    Taha Chaiechi

  3. College of Business, Law and Governance, Bebegu Yumba Campus, James Cook University, Townsville, QLD, Australia

    Rabiul Beg

Authors
  1. Michael Koczyrkewycz
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  2. Taha Chaiechi
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  3. Rabiul Beg
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Corresponding author

Correspondence to Michael Koczyrkewycz .

Editor information

Editors and Affiliations

  1. College of Business, Law and Governance, James Cook University, Townsville, QLD, Australia

    Taha Chaiechi

  2. James Cook University, Singapore, Singapore

    Jacob Wood

Appendices

Appendix 1 Descriptive Statistics. Australia: 1980–2015

Statistics

INV

UT

P

IR

PG

SMTR

GE

Mean

0.25

0.42

0.52

0.05

0.04

0.52

0.25

Median

0.26

0.43

0.53

0.05

0.04

0.52

0.25

Maximum

0.28

0.51

0.58

0.10

0.14

1.12

0.27

Minimum

0.22

0.32

0.43

0.00

−0.01

0.10

0.21

Std. dev.

0.02

0.06

0.04

0.03

0.03

0.26

0.01

Skewness

−0.39

−0.11

−0.26

0.00

0.92

0.22

−0.77

Kurtosis

2.17

1.46

1.79

2.04

3.91

2.30

2.87

J-B.

1.92

3.62

2.60

1.39

6.34

1.02

3.56

Prob.

0.38

0.16

0.27

0.50

0.04

0.60

0.17

Ob.

36

36

36

36

36

36

36

  1. INV Investment, UT Capacity Utilisation, P Profit Share, IR Interest Rate, PG Productivity Growth, SMTR Stock Market Turnover Ratio, GE Government Expenditure

Appendix 2 Responses of INV to Cholesky One S.D. (d.f. Adjusted) Innovations, Australia: 1980–2015

Period

UT

P

IR

PG

SMTR

GE

1

0.0000

0.0000

0.0000

0.0000

0.0000

0.0000

2

0.0016

0.0008

0.0018

0.0026

−0.0001

0.0004

3

0.0008

0.0047

−0.0012

0.0040

0.0025

0.0002

4

0.0000

0.0004

0.0012

0.0013

0.0037

0.0019

5

−0.0030

−0.0001

0.0047

0.0025

0.0030

0.0033

6

−0.0038

0.0028

0.0066

0.0041

0.0039

0.0033

7

−0.0017

0.0030

0.0043

0.0038

0.0039

0.0020

8

0.0013

0.0024

0.0021

0.0029

0.0040

0.0015

9

0.0026

0.0034

0.0013

0.0025

0.0043

0.0013

10

0.0033

0.0033

0.0011

0.0029

0.0036

0.0011

11

0.0036

0.0036

0.0000

0.0035

0.0036

0.0007

12

0.0036

0.0038

−0.0003

0.0033

0.0043

0.0009

13

0.0029

0.0034

0.0005

0.0031

0.0044

0.0013

14

0.0022

0.0034

0.0014

0.0035

0.0042

0.0016

15

0.0019

0.0036

0.0016

0.0037

0.0044

0.0016

16

0.0021

0.0035

0.0015

0.0035

0.0045

0.0016

17

0.0024

0.0036

0.0014

0.0034

0.0045

0.0015

18

0.0028

0.0037

0.0012

0.0034

0.0044

0.0014

19

0.0031

0.0037

0.0009

0.0034

0.0044

0.0012

20

0.0033

0.0038

0.0006

0.0034

0.0044

0.0012

  1. Cholesky Ordering: INV, UT, P, IR, PG, SMTR, GE. INV Investment, UT Capacity Utilisation, P Profit Share, IR Interest Rate, PG Productivity Growth, SMTR Stock Market Turnover Ratio, GE Government Expenditure

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Koczyrkewycz, M., Chaiechi, T., Beg, R. (2022). How Resilient Is the Investment Climate in Australia? Unpacking the Driving Factors. In: Chaiechi, T., Wood, J. (eds) Community Empowerment, Sustainable Cities, and Transformative Economies. Springer, Singapore. https://doi.org/10.1007/978-981-16-5260-8_4

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