Investment, finance and the business cycle: evidence from the Dutch manufacturing sector

In this paper we analyse the impact of profits on investment using data from the Dutch manufacturing sector in a simple Kaleckian investment model. Profits and capacity determine the level of investment. The empirical analysis of this ‘non-mainstream’ model confirms conclusions drawn in the context of financial accelerator models. The impact of profits on investment is countercyclical. Apparently, entrepreneurs use public capital markets primarily as a source of funds in booming periods.