Abstract:
We detail a secular slowdown in investment rates using a large panel of advanced economy non-financial firms from 18 countries between 1994-2017. We test competing explanations for the investment slowdown using a Bayesian ‘mixed effects’ model, with time-varying and country-varying coefficients to fully explore variation in financing constraints and investment behaviour. Firms’ estimated underlying impetus to invest falls precipitously between 1997-2017, with only a mild recovery between 2003-2008. The slope of the investment demand curve -- approximated by time-varying Q regressions coefficients -- remains roughly constant, indicating that `financialization' or growing monopoly power has not dulled firms' responsiveness to investment opportunities. Contrary to precautionary savings arguments, advanced economy firms are not meaningfully financially constrained. Instead, the corporate sector as a whole is increasingly a net external `releaser' of funds to shareholders, creditors, and bondholders, and this behaviour closely tracks declining investment rates between years.
Citation:
Strauss, I & Yang, J. (2020). 'Corporate Secular Stagnation: Empirical Evidence on the Advanced Economy Investment Slowdown'. INET Oxford Working Paper No. 2019-16.