Macroeconomic Policy, Product Market Competition, and Growth: The Intangible Investment Channel

JaeBin Ahn, Romain Duval and Can Sever

No 2020/025, IMF Working Papers from International Monetary Fund

Abstract: While there is growing evidence of persistent or even permanent output losses from financial crises, the causes remain unclear. One candidate is intangible capital – a rising driver of economic growth that, being non-pledgeable as collateral, is vulnerable to financial frictions. By sheltering intangible investment from financial shocks, counter-cyclical macroeconomic policy could strengthen longer-term growth, particularly so where strong product market competition prevents firms from self-financing their investments through rents. Using a rich cross-country firm-level dataset and exploiting heterogeneity in firm-level exposure to the sharp and unforeseen tightening of credit conditions around September 2008, we find strong support for these theoretical predictions. The quantitative implications are large, highlighting a powerful stabilizing role for macroeconomic policy through the intangible investment channel, and its complementarity with pro-competition product market deregulation.

Keywords: WP; intangible investment; coverage ratio; Financial frictions; Intangible investment; Competition; Product Market; Monetary policy; Growth; Hysteresis; product market competition; balance sheet vulnerability; credit constraint; intangible asset investment; leverage ratio; Commodity markets; Global financial crisis of 2008-2009; Financial statements; Global (search for similar items in EconPapers)
Pages: 28
Date: 2020-02-07
New Economics Papers: this item is included in nep-fdg, nep-mac and nep-tid
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Citations: View citations in EconPapers (9)

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