Corporate Secular Stagnation: Firm-Level Evidence on the Advanced Economy Investment Slowdown

Abstract

Using a Bayesian mixed effects model on a large firm-level panel we show that the investment slowdown is a long-standing feature across 21 advanced economies since 1999. We find a flattening in the investment-q relationship over time, as firms become less responsive to investment opportunities. Weaker responsiveness to investment opportunities is closely linked to firms with more market power. At the macroeconomic level, a shortage of investment opportunities – as per the original secular stagnation thesis – predicts 40% of the variation in firms’ estimated baseline investment rates.

Keywords: D22, D25, E22, E27, F23