Real-Financial Linkages in the Canadian Economy: An Input-Output Approach

Financing Constraints and Investment Efficiency in Canadian Real Estate and Construction Firms: A Stochastic Frontier Analysis

“…Given the reflective and interesting relationship between financing constraints on a firm's investment and financing behavior, researchers further investigated this issue under various regional and industrial settings. For instance, Harris et al (1994) examine the above association for Indonesia, Günçavdı et al (1998) for Turkey, Gelos and Werner (2002) for Mexico, Wang (2003) for Taiwan, Koo and Maeng (2005) for Korea, Bhaduri (2005) and Ghosh (2006) for India, and finally, McVanel and Perevalov (2008), Leung and Secrieru (2012) and Islam and Luo (2018) for Canada. McVanel and Perevalov (2008), by using data at the firm level for Canadian firms for the 1980-2006 period, observe that the cash holding behavior and firm characteristics were highly correlated, finding that the smaller the firm size, the larger cash holdings become.…”

“…Furthermore, firms experiencing variability in cash flow tend to hold fewer substitutes of cash, and firms with a tendency to spend frequently on R&D tend to become financially distressed. Leung and Secrieru (2012) study the strength of real financial linkages by applying input-output analysis. They calculate and compare multipliers with and without endogenous financial flows to test the impact of financial flows when there is a final demand shock in the economy, finding that it increases the impact of a final demand shock on output by 4%-11%.…”

Government spending multiplier and regional economic growth: a general equilibrium analysis

“…The use of input-output modeling presents a calculation of multipliers that do not necessitate premises about the working of monetary policy and address this problem using data, reflecting the production structure of the economy each year and imposes much less structure on the data. However, Leung and Secrieru (2012) conclude that the main drawback is that the analysis is static and relies on restrictive assumptions such as fixed input-output coefficients (i.e., Leontief technology). Hence, the IO approach is subject to the Lucas critique: as shocks shift prices, agents cannot adjust 14 .…”

“…Thus, the short-run responses to countercyclical fiscal policy operated helped to mitigate the negative impacts of the financial crisis in the Brazilian economy that year. Leung and Secrieru (2012) compare multipliers considering real-financial linkages, constructing the Financial Social Accounting Matrix (FSAM), where financial flows are endogenous. The authors made exogeneity assumptions on government spending and the rest of the world, concluding that financial flows amplify the effect of a final demand shock on Canadian output, exhibiting GDP multipliers around 1.3-1.7 in general.…”