Main Drivers of the Recent Decline in Italy's Non-Construction Investment

35 Pages Posted: 25 Aug 2015

Date Written: June 25, 2015

Abstract

This paper examines the causes of the exceptionally marked fall in non-construction investment in Italy since 2007. Non-financial private services were the main driver of the decline in the aggregate investment rate, but all sectors weighed in negatively; the reallocation of value added away from industry was a further drag on investment. In concordance with survey findings, an aggregate model of investment indicates that even during the recent double recession the most important driver of capital accumulation was demand conditions. The user cost of capital had a substantial negative impact in the acute phases of the sovereign debt crisis, but since 2013 its contribution has been positive, thanks to the ECB’s expansionary monetary policy. The constraints on capital accumulation imposed by tight credit supply conditions were particularly severe in 2009 and 2012. Finally, uncertainty provided a sizeable drag on investment growth not only during the global financial crisis but also in the last two years. The significance of these determinants of investment is confirmed also by a disaggregated model for the thirteen manufacturing branches.

Keywords: non-construction investment, uncertainty, credit constraints

JEL Classification: E22, E27

Suggested Citation

Busetti, Fabio and Giordano, Claire and Zevi, Giordano, Main Drivers of the Recent Decline in Italy's Non-Construction Investment (June 25, 2015). Bank of Italy Occasional Paper No. 276. Available at SSRN: https://ssrn.com/abstract=2649939 or http://dx.doi.org/10.2139/ssrn.2649939

Fabio Busetti (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy
39 06 479 23245 (Phone)
39 06 474 7820 (Fax)

Claire Giordano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Giordano Zevi

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Register to save articles to
your library

Register

Paper statistics

Downloads
23
Abstract Views
347
PlumX Metrics