RDP 8709: A Note on Aggregate Investment in Australia 3. Australian Studies

In the early 1970s, empirical work on investment behaviour in Australia was strongly influenced by standard neo-classical theory.[7] Although this approach was theoretically more appealing than the popular accelerator models of the 1960s, it proved to be a poor explanation of investment behaviour in Australia. A broader study by Higgins et.al. (1976) sought to improve empirical understanding of investment by employing a more refined neo-classical model as well as a variety of different models. As in the earlier studies, Higgins et.al. found that the neo-classical model performed poorly; furthermore, they found that it was noticeably inferior to simpler investment functions based on the accelerator and securities value models[8]. Subsequent development of the neo-classical model has been taken up by Australian macro-econometric models such as the RBII[9] model, while the AMPS[10] and NIF88[11] models claim to use a variant of Tobin's q theory to determine business fixed investment. In a recent study, Rider (1987) tests the q theory using a tax-adjusted q series. However, the results do not support the q theory.


See Mackrell et.al. (1971) and McLaren (1971) for example. [7]

For a useful survey article of the econometric contributions of the 1970s see Hawkins (1979). See also Stegman (1982) for a novel approach to estimating an accelerator-type investment function, and Kohli and Ryan (1986) for a more refined neo-classical model. [8]

See Edey et.al. (1987). [9]

See Murphy et.al. (1986). [10]

See Simes (1987). [11]