Capital Appropriations and Investment Behavior

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Abstract
The purpose of this article is to analyze the investment behavior of firms by introducing capital appropriations as an intermediate stage of the investment process. Investment process is divided into two stages: that leading to appropriation of funds and that from appropriations to actual expenditures. The present study is based on the investment theory developed by Dale Jorgenson. Appropriations data are available from the NICB Survey and investment expenditures data from the OBE-SEC Survey. Here, the appropriations data have been raised to the OBE-SEC level. Investment functions based on the theory are first fitted to each stage separately; then, taking account of the interrelationships between the stages, combined estimates are discussed. The empirical results have been obtained for 15 sub-industries and three aggregate industries of U. S. manufacturing for the sample period 1955, first quarter, to 1964, fourth quarter. The results support the hypothesis that appropriations occur earlier than anticipations in the investment process and that appropriations are very sensitive to current changes in economic conditions.

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