Business investment in EU countries

101 Pages Posted: 30 Oct 2018

See all articles by Marta Banbura

Marta Banbura

European Central Bank

Maria Albani

Bank of Greece

Gene Ambrocio

Bank of Finland

Dirk Bursian

Goethe University Frankfurt; Deutsche Bundesbank

Ginters Buss

Bank of Latvia

Jasper de Winter

De Nederlandsche Bank

Claire Giordano

Bank of Italy

Paulo Júlio

Bank of Portugal

Julien Le Roux

European Central Bank (ECB)

Matija Lozej

University of Primorska; Central Bank of Ireland

Carmen Martinez-Carrascal

Banco de España

Philipp Meinen

Deutsche Bundesbank

Nektarios Michail

Cyprus University of Technology

Dimitris Papageorgiou

Bank of Greece

Sebastiaan Pool

De Nederlandsche Bank - Research Department

Rafael Ravnik

Croatian National Bank

Máté Tóth

European Central Bank (ECB)

Giordano Zevi

Bank of Italy

Miroslav Gavura

Národná banka Slovenska

Sune Malthe-Thagaard

National Bank of Denmark

Jose Maria

Bank of Portugal

Lucio San Juan

Banco de España

Date Written: October 29, 2018

Abstract

The article analyses recent developments in business investment for a large group of EU countries, using a broad set of analytical tools and data sources. We find that the assessment of whether or not investment is currently low varies across benchmarks and countries. At the euro area level and for most countries, the level of business investment is broadly in line with the level of overall activity. However rates of capital stock growth have slowed down since the crisis. The main cyclical determinants of investment developments in the euro area include foreign and domestic demand, uncertainty and financial conditions. Uncertainty seems to have played a negative role during the financial and sovereign debt crises; however, given its low levels more recently, it has not acted as a drag on business investment overall during the recovery. Credit constraints appear to have hindered investment during the twin crises, especially in stressed countries. Aside from cyclical developments, important secular factors – relating to demographics, the changing nature and location of production, and the business environment – have influenced investment. Another factor that may have amplified the decline in private investment, particularly in countries that were hit hardest by the sovereign debt crisis, is the low level of public investment. This is because when public investment enhances the productivity of the private sector, there may be positive spillovers from the former to the latter, including across countries. Finally, intra-sector capital misallocation, measured as the within-sector dispersion across firms in the marginal revenue product of capital, has been increasing in Europe since 2002, which may in turn have exerted a significant drag on total factor productivity dynamics, and hence on aggregate output growth.

Keywords: business investment, uncertainty, monetary policy, capital misallocation

JEL Classification: E32, E52, E62, D24, D61

Suggested Citation

Banbura, Marta and Albani, Maria and Ambrocio, Gene and Bursian, Dirk and Buss, Ginters and de Winter, Jasper and Giordano, Claire and Júlio, Paulo and Le Roux, Julien and Lozej, Matija and Martinez-Carrascal, Carmen and Meinen, Philipp and Michail, Nektarios and Papageorgiou, Dimitris and Pool, Sebastiaan and Ravnik, Rafael and Tóth, Máté and Zevi, Giordano and Gavura, Miroslav and Malthe-Thagaard, Sune and Maria, Jose and San Juan, Lucio, Business investment in EU countries (October 29, 2018). ECB Occasional Paper No. 215. Available at SSRN: https://ssrn.com/abstract=3275157

Marta Banbura (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Maria Albani

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

Gene Ambrocio

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Dirk Bursian

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt/Main, 60323
Germany

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Ginters Buss

Bank of Latvia ( email )

Riga, 1050
United States

Jasper de Winter

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Claire Giordano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Paulo Júlio

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Julien Le Roux

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Matija Lozej

University of Primorska ( email )

Glagoljaska 8
Koper, SI-6000
Slovenia

Central Bank of Ireland ( email )

Dame Street
Dublin, 2
Ireland

Carmen Martinez-Carrascal

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Philipp Meinen

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Nektarios Michail

Cyprus University of Technology ( email )

Limassol, 3603
Cyprus

Dimitris Papageorgiou

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

Sebastiaan Pool

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

Rafael Ravnik

Croatian National Bank ( email )

Croatia

Máté Tóth

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Giordano Zevi

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Miroslav Gavura

Národná banka Slovenska ( email )

Bratislava
Slovakia

Sune Malthe-Thagaard

National Bank of Denmark ( email )

Havnegade 5
DK-1093 Copenhagen K
Denmark

Jose Maria

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Lucio San Juan

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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