Corporate Secular Stagnation: Empirical Evidence on the Advanced Economy Investment Slowdown

Ilan Strauss and Jangho Yang

INET Oxford Working Papers from Institute for New Economic Thinking at the Oxford Martin School, University of Oxford

Abstract: We detail a secular slowdown in investment rates using a large panel of advanced economy non-financial firms from 18 countries between 1994-2017. We test competing explanations for the investment slowdown using a Bayesian 'mixed effects' model, with time-varying and country-varying coefficients to fully explore variation in financing constraints and investment behaviour. Firms' estimated underlying impetus to invest falls precipitously between 1997-2017, with only a mild recovery between 2003-2008. The slope of the investment demand curve -- approximated by time-varying Q regressions coefficients -- remains roughly constant, indicating that `financialization' or growing monopoly power has not dulled firms' responsiveness to investment opportunities. Contrary to precautionary savings arguments, advanced economy firms are not meaningfully financially constrained. Instead, the corporate sector as a whole is increasingly a net external `releaser' of funds to shareholders, creditors, and bondholders, and this behaviour closely tracks declining investment rates between years.

Keywords: Secular Stagnation; Investment Slowdown; Hierarchical Model; Finance Constrained; Tobin's Q; Investment Rates; Corporate Savings; Bayesian Econometrics. (search for similar items in EconPapers)
JEL-codes: D22 D24 E12 E22 E23 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2020-07
New Economics Papers: this item is included in nep-cfn, nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:amz:wpaper:2019-16

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