(Why) is Investment Weak?

Abstract

In spite of very easy financing conditions globally, investment has been rather weak in the aftermath of the Great Recession. What explains this apparent disconnect? The evidence suggests that, historically, uncertainty about the future state of the economy and expected profits play a key role in driving investment, and financing conditions less so. As a result, investment after the Great Recession appears to have been broadly in line with what could have been expected based on past relationships. A stronger recovery of investment would seem to depend on a reduction in economic uncertainty and expectations of stronger future growth.

JEL Classification: E22, E27, C33