Investment Dynamics in Italy: Financing Constraints, Demand and Uncertainty

26 Pages Posted: 6 Feb 2016

See all articles by Stephen R. Bond

Stephen R. Bond

Nuffield College; Institute for Fiscal Studies (IFS)

Giacomo Rodano

Bank of Italy

Nicolas Andre Benigno Serrano-Velarde

Bocconi University

Date Written: July 23, 2015

Abstract

In this paper we describe the investment behavior of manufacturing firms in Italy between 1995 and 2013 and we investigate the most important factors leading to the decline in investment since 2008. We estimate an error correction model for investment using information on firms' demand expectations, uncertainty, and credit constraints, based on the Bank of Italy's Survey of Industrial and Service Firms. Our results suggest that the fall in the expected growth rate of real sales played an important role in quantitative terms, and that the 2008 demand shock may explain a long period of weak investment. We also find that credit constraints have a significant impact at the firm level, but less so in aggregate terms. Finally higher uncertainty does not seem to have played a significant role in explaining investment dynamics during the crisis.

Keywords: investment, expected demand, credit constraints, demand uncertainty

JEL Classification: C23, E22, D8

Suggested Citation

Bond, Stephen R. and Rodano, Giacomo and Serrano-Velarde, Nicolas Andre Benigno, Investment Dynamics in Italy: Financing Constraints, Demand and Uncertainty (July 23, 2015). Bank of Italy Occasional Paper No. 283. Available at SSRN: https://ssrn.com/abstract=2728286 or http://dx.doi.org/10.2139/ssrn.2728286

Stephen R. Bond

Nuffield College ( email )

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Institute for Fiscal Studies (IFS)

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Giacomo Rodano (Contact Author)

Bank of Italy ( email )

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Italy

Nicolas Andre Benigno Serrano-Velarde

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

HOME PAGE: http://https://sites.google.com/site/nicolasserranovelarde/

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