This paper analyses inventory investment using a balanced panel of 82 Dutch firms. We start from the Lovell (1961) inventory model and amend it with cash flow to introduce capital market imperfections. The empirical evidence provides support for the relevance of capital market imperfections in...

The small country assumption affects the modelling of the export demand and export price equations. A large (monopolistic) country can set its export price as a mark-up over marginal cost, because it has market power. In contrast, small countries have to deal with competition which forces prices...