Land as production factor

To justify industrial land development, municipal planning officials frequently use the argument that unrestricted availability of business sites will foster economic development and employment growth. However, to date convincing evidence to support this claim does not exist. So empirical research into this subject is warranted. Furthermore, this relationship implicitly assumes that the acreage of land, necessary for firms to be able to conduct their business, is a production factor like labour and capital. Unfortunately, research on land use from this perspective has since long disappeared from mainstream economic theory. Ample research is done on land use in relation to firm location, both empirically and theoretically. However, the amount of land as a production factor for firms is generally disregarded. This lack of theory may hinder research into the claim made by planning officials. Therefore, present paper seeks to reintroduce land as a production factor in economic theory. In this article we explore to what extent land can be regarded as a production factor. We aim to integrate this view into established economic models from urban land economics and real estate theory. We do so at the macro and at the micro economic level. At the macro level, the available amount of industrial land could be a factor in national economic growth, just like growth of the labour force. At the micro level we consider whether the theory of individual firms’ production function is able to incorporate the amount of land as production factor. We commence this paper with a historical overview of the treatment of land in economic theory, before we pursue a theoretical framework that incorporates land as a factor of production. The paper concludes with a comparison between land and the established production factors labour and capital.

Land as production factor

To justify industrial land development, municipal planning officials frequently use the argument that unrestricted availability of business sites will foster economic development and employment growth. However, to date convincing evidence to support this claim does not exist. So empirical research into this subject is warranted. Furthermore, this relationship implicitly assumes that the acreage of land, necessary for firms to be able to conduct their business, is a production factor like labour and capital. Unfortunately, research on land use from this perspective has since long disappeared from mainstream economic theory. Ample research is done on land use in relation to firm location, both empirically and theoretically. However, the amount of land as a production factor for firms is generally disregarded. This lack of theory may hinder research into the claim made by planning officials. Therefore, present paper seeks to reintroduce land as a production factor in economic theory. In this article we explore to what extent land can be regarded as a production factor. We aim to integrate this view into established economic models from urban land economics and real estate theory. We do so at the macro and at the micro economic level. At the macro level, the available amount of industrial land could be a factor in national economic growth, just like growth of the labour force. At the micro level we consider whether the theory of individual firms' production function is able to incorporate the amount of land as production factor. We commence this paper with a historical overview of the treatment of land in economic theory, before we pursue a theoretical framework that incorporates land as a factor of production. The paper concludes with a comparison between land and the established production factors labour and capital

Dealing with large and volatile capital flows and the role of the IMF

The last decade has been characterised by the pronounced volatility of capital flows. While cross-border capital flows can have many benefits for both advanced and emerging market economies, they may also carry risks, which require appropriate policy responses. Disentangling the push from the pull factors driving capital flows is key to designing appropriate policies to deal with them. Strong institutions, sound fundamentals and a large domestic investor base tend to shield economies from adverse global conditions and attract less volatile types of capital. However, when the policy space for using traditional macroeconomic policies is limited, countries may also turn to macroprudential and capital flow management policies in a pragmatic manner. The IMF can play an important role in helping countries to deal with capital flows, through its surveillance and lending policy and through international cooperation

Corporate finance and economic activity in the euro area: Structural issues report 2013

This report analyses and reviews the corporate finance structure of non-financial corporations (NFCs) in the euro area, including how they interact with the macroeconomic environment. Special emphasis is placed on the crisis that began in 2007-08, thus underlining the relevance of financing and credit conditions to investment and economic activity in turbulent times. When approaching such a broad topic, a number of key questions arise. How did the corporate sector’s capital structure, internal and external financing sources, and its tendency to leverage, evolve in the euro area over the last decade and in the run-up to the financial crisis in particular? Did these developments contribute to and/or exacerbate the financial crisis? Did the corporate sector’s response to various shocks and vulnerabilities support or encumber the euro area economy, both during the financial crisis and in its aftermath

Is bank capital procyclical? A cross-country analysis

This paper investigates the determinants of commercial banks' own internal capital targets and potential sensitivity of these levels to the business cycle . World-wide results make clear that banks' own risk is only slightly dependent on the business cycle. Banks tend to hold substantial capital buffers on top of minimum requirements, reflecting that they hold capital for other reasons than strictly meeting the capital requirements. These results suggest that actual capital levels may not become substantially more procyclical under the new risk-sensitive Basel II regime. However, a number of banks, especially smaller ones, combine a relatively risky portfolio with limited buffer capital. A more risk-sensitive capital regulation regime could force these banks to obtain higher capital levels, which would make them more procyclical.Basel II; BIS capital ratio; bank's own capital targets; credit crunch; business cycle

Bank Provisioning Behaviour and Procyclicality

The current debate on the possible procyclicality of the new Basel Accord pays little attention to the procyclicality created by unsound loan loss provisioning. This paper investigates how bank provisioning behaviour is related to the business cycle, using 8,000 bank-year observations from 29 OECD countries over the past decade. Provisioning turns out to be substantially higher when GDP growth is lower, reflecting increased riskiness of the credit portfolio when the business cycle turns downwards, which also increases the risk of a credit crunch. This effect is mitigated somewhat as provisions rise in times when earnings are higher, suggesting income smoothing,and loan growth is higher, indicating increased riskiness.banks, loan loss provisioning, lending, credit crunch, business cycle, procyclicality, income smoothing, capital management

Is Bank Capital Procyclical? A Cross-Country Analysis

This article investigates the determinants of commercial banks' own internal capital targets and potential sensitivity of these levels to the business cycle. Worldwide results make clear that banks' own risk is only slightly dependent on the business cycle. Banks tend to hold substantial capital buffers on top of minimum requirements, reflecting that they hold capital for other reasons than strictly meeting the capital requirements. These results suggest that actual capital levels may not become substantially more procyclical under the new risk-sensitive Basel II regime. However, a number of banks, especially smaller ones, combine a relatively risky portfolio with limited buffer capital. A more risk-sensitive capital regulation regime could force these banks to obtain higher capital levels, which would make them more procyclical. (JEL E32, G21, G28, G31