Land Prices and Business Fixed Investments in Japan

Nobuhiro Kiyotaki, Kenneth D. West

NBER Working Paper No. 10909
Issued in November 2004
NBER Program(s):   EFG

Japan has seen episodes in which boom and bust in land prices is accompanied by boom and bust in business fixed investment. We develop a model that includes land in the production function. We show that in this model movements in land prices will be associated with movements of the capital stock in the same direction, provided the elasticity of substitution between land and capital is greater than one. We then estimate an aggregate investment function. Consistent with an elasticity greater than one, increases in land prices are associated with increases in the business capital stock even after controlling for movements in output and the cost of capital; decreases have a symmetric effect. In the end, however, we find that movements in land prices explain relatively little of the movement in the business fixed investment. In addition to possibly indicating that the elasticity is very near one, the small effect may result because of difficulty in extracting information from noisy land prices, neglect of the effects of regulations, and failure to consider credit constraints.

download in pdf format
   (150 K)

email paper

This paper is available as PDF (150 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10909

Published: Klein, L.R. (ed.) Long Run Growth and Short Run Stabilization: Essays in Memory of Albert Ando. Cheltenham: Edward Elgar, 2006.

Users who downloaded this paper also downloaded these:
Kiyotaki and West w5546 Business Fixed Investment and the Recent Business Cycle in Japan
Kiyotaki and West Business Fixed Investment and the Recent Business Cycle in Japan
Kiyotaki and Moore w5083 Credit Cycles
Noguchi Land Prices and House Prices in Japan
Blomstrom, Lipsey, and Zejan w4436 Is Fixed Investment the Key to Economic Growth?
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us