Is There an Investment Gap in Advanced Economies? If So, Why?
42 Pages Posted: 19 Jul 2017
Date Written: July 2017
We analyze private fixed investment across European economies and in the US over the past 20 years. We study the impact of competition and financial constraints on tangible and intangible investment. We find that investment is weak in both regions, but argue that the reasons are cyclical in Europe and structural in the US. In the US, we find that investment is lower than predicted by fundamentals starting around 2000, and that the gap is driven by industries where competition has decreased over time. The decline in US investment has coincided with increased concentration and decreased anti-trust enforcement. In Europe, we find that investment is roughly in line with measures of profitability and Tobin’s
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