Reassessing the classical investment function: a panel data analysis from NAFTA-USMCA

Abstract

This study applies the second generation of panel cointegration techniques in conjunction with those estimators that control cross-sectional dependence to test the plausibility of the classical approach to capital accumulation in Canada, Mexico, and the United States from 1960 to 2019 empirically. The findings suggest that private investment is positively related to the profit rate, unit labour costs, and growth in demand both in the short and long-run, while the causality analysis indicates potential feedback loops between the variables.