Investment in the Euro Area: Why Has It Been Weak?

Barkbu, Bergljot; Berkmen, Pelin; Lukyantsau, Pavel; Saksonovs, Sergejs; Schoelermann, Hanni

doi:10.5089/9781498364805.001

Cited by 35 publications

(28 citation statements)

References 17 publications

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“…However, the focus in this paper is on investment growth, as a critical component of overall output growth (ultimately, the source of rising living standards), rather than changes in the investment-to-GDP ratio that would only capture changes in investment growth relative to output growth. This is in line with recent studies on advanced economies (Banerjee, Kearns and Lombardi 2015;Bussiere, Ferrara, and Milovic 2016;Barkbu et al 2015;Kothari, Lewellen, and Warner 2015) or for individual EMDEs (Anand and Tulin 2014). The results are shown in Annex Table 1.1.…”

supporting

confidence: 78%

Weakness in Investment Growth: Causes, Implications and Policy Responses

Kose¹,

Ohnsorge²,

Ye³

et al. 2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: Investment growth in emerging market and developing economies has slowed sharply since 2010. This paper presents a comprehensive analysis of the causes and implications of this slowdown and presents a menu of policy responses to improve investment growth. It reports four main results. First, the slowdown has been broad-based and most pronounced in the largest emerging markets and in commodity exporters. Second, it reflects a range of obstacles: weak activity, negative terms-of-trade shocks, declining foreign direct investment inflows, elevated private debt burdens, heightened political risk, and adverse spillovers from major economies. Third, by slowing capital accumulation and technological progress embedded in investment, weak post-crisis investment growth has contributed to sluggish growth of potential output in recent years. Finally, although specific policy priorities depend on country circumstances, policymakers can boost investment both directly, through public investment, and indirectly, by encouraging private investment, including foreign direct investment, and by undertaking measures to improve overall growth prospects and the business climate. JEL Classification Numbers: E22, F2, F6, O1, O4 Terms of use: Documents in

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supporting

confidence: 78%

Weakness in Investment Growth: Causes, Implications and Policy Responses

Kose¹,

Ohnsorge²,

Ye³

et al. 2017

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“…Separating the cost of capital into relative prices and the interest rate component shed light on a sizeable negative correlation between relative prices and investment, and the almost zero interest elasticity of investment (Tevlin and Whelan, 2003). Studies looking at different periods and a variety of countries confirm this finding 5 (Banerjee et al, 2015;and Barkbu et al 2015) or even find a positive correlation between interest rates and investment (Kothari et al, 2014). Explanations for the missing interest rate effects range from simultaneity bias to the fact that aggregate interest rate series do not reflect the interest component of investment (Sharpe and Suarez, 2014).…”

Section: The Comparative Performance Of Benchmark Investment Modelsmentioning

confidence: 97%

“…Equation (3) is usually estimated in constant domestic prices (Oliner et al, 1995;Lee and Rabanal, 2010;Barkbu et al, 2015;IMF, 2015). It can be easily transformed into a net investment equation:…”

Section: The Accelerator Modelmentioning

confidence: 99%

“…Also, market valuation of the assets of non-financial corporation at the macroeconomic level is bound to be subject to measurement errors, partly arising from equity market bubbles. Nevertheless, recent empirical work by the IMF (Lee and Rabanal, 2010;Barkbu et al, 2015) relied on the Q model for aggregate investment.…”

Section: The Comparative Performance Of Benchmark Investment Modelsmentioning

confidence: 99%

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Regulation, Institutions and Aggregate Investment: New Evidence from OECD Countries

Égert

2018

Open Econ Rev

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Using a panel of 32 OECD countries from 1985 to 2013, we show that more stringent product and labour market regulations are associated with less investment (lower capital stock). The paper also sheds light on the existence of non-linear effects of product and labour market regulation on the capital stock. Several alternative testing methods show that the negative influence of product and labour market regulation is considerably stronger at higher levels. The paper uncovers important policy interactions between product and labour market policies. Higher levels of product market regulations (covering state control, barriers to entrepreneurship and barriers to trade and investment) tend to amplify the negative relationships between product and labour market regulations and the capital stock. Equally important is the finding that the rule of law and the quality of (legal) institutions alters the overall impact of regulations on capital deepening: better institutions reduce the negative effect of more stringent product and labour market regulations on the capital stock, possibly through the reduction of uncertainty as regards the protection of property rights. Terms of use: Documents inJEL-Codes: E240, C130, C230, C510, L430, L510.

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“…The European Commission (2015) argues that weak economic activity is a main driver of the slump in investment but also points to deleveraging pressures in the private sector. Low economic activity, as the most relevant driver holding back investment, has also been emphasized in analyses of the IMF (IMF 2015; Barkbu et al 2015). The IMF (2015) states that only a small fraction of observed investment dynamics in a sample of advanced economies remains unexplained after controlling for changes in output.…”

Section: Iiib Key Drivers Of Business Investment Since the Global Fimentioning

confidence: 99%

Post-crisis business investment in the euro area and the role of monetary policy

Ademmer

Jannsen

2018

Applied Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Business investment in the euro area strongly declined during the Global Financial Crisis and the Sovereign Debt Crisis. It has not yet rebounded to its pre-crisis trend despite the very expansionary monetary policy measures of the ECB. We analyse the sluggish recovery in business investment in the euro area and the role of monetary policy in three steps. We investigate the main factors that have impeded business investment since the Global Financial Crisis. We empirically analyse how business investment has developed compared to typical patterns during other financial crises. Based on these results, we then discuss how effective monetary policy has been in stimulating business investment since the Global Financial Crisis. We conclude that business investment in the euro area has developed broadly in line with typical post-crisis patterns. Monetary policy significantly contributed to stabilize business investment at the beginning of the crises. In the aftermath of the crises, however, there seems to be little scope for monetary policy to further stimulate investment. Terms of use: Documents in EconStor may

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Investment in the Euro Area: Why Has It Been Weak?

Cited by 35 publications

References 17 publications

Weakness in Investment Growth: Causes, Implications and Policy Responses

Weakness in Investment Growth: Causes, Implications and Policy Responses

Regulation, Institutions and Aggregate Investment: New Evidence from OECD Countries

Post-crisis business investment in the euro area and the role of monetary policy

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