A spatial model of investment behaviour for First Nation governments

ABSTRACT

In this study we investigate the investment behaviour of the First Nation governments (FNGs) ($N=68$) in Saskatchewan, Canada. FNGs invest revenues into First Nation-owned businesses or through joint ventures with neighbouring FNGs. We argue that in cases of jointly controlled capital stock through joint ventures between multiple FNGs, it is necessary to account for externalities originating from neighbouring FNGs. To test this hypothesis, we developed a spatially augmented model of investment behaviour. The results show that capacity utilization is a major determinant of FNGs’ investment behaviour. Neighbouring FNGs influence the investment behaviour of other FNGs and accounting for other FNGs’ externalities improves explanatory power of empirical models of First Nation investment behaviour.

KEYWORDS:

• externalities
• spatial econometric models
• economics of Indigenous peoples
• investment and capital stock

JEL:

• C31
• D62
• J15
• R53

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

Notes

1 First Nations, Metis and Inuit peoples (referred to as Aboriginal or Indigenous peoples) are the first inhabitants of Canada. This is equivalent to the term Native American, which is commonly used in the United States. We use the term First Nations instead of Native American when using examples from the United States.

2 The cut-off level is considered as latitude 55° N.

3 It is worthy to note that some Saskatchewan FNGs report their ‘band-owned’ businesses’ financials as separate entities. In this study, we only investigate those investments that are consolidated into the government’s statements.

4 Based on Indigenous and Northern Affairs Canada (INAC) databases, there are a total of 70 First Nations in Saskatchewan. Owing to lack of data, two First Nations are excluded from our sample.

5 We acknowledge that non-designated revenue is neither exclusive to the revenues generated from own economic activities nor does it encompass fully unallocated sources of revenue. While it only excludes those revenues about which we were certain that they were earmarked for specific purposes, we assume that it is a reliable and robust estimation of the revenues that an FNG has more control over in terms of spending on its own terms.

6 The common approach to measure liquidity is to subtract current liabilities from current assets. Since data on current assets and current liabilities were not available for all FNGs in our sample, we used another measure. FNGs are considered as public sectors and they follow accounting structural rules that are slightly different than those of ‘regular’ corporations. One difference is that while some FNGs report their current assets and current liabilities, the others do not. All FNGs categorize their assets into financial and non-financial assets. Hence, we used financial assets minus liabilities as a measure of liquidity in this study.

Additional information

Funding

This work was supported by the TD Bank [SDA-2013].