Investment Puzzle: Deeper Roots

Sujin Kim ()
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Sujin Kim: Korea Institute for International Economic Policy

No 17-2, Working Papers from Korea Institute for International Economic Policy

Abstract: Even at near-zero interest rates for a prolonged period since the financial crisis, why has business investment in advanced economies remained persistently below its pre-crisis level? This paper investigates empirically the roots of this investment puzzle from the global megatrend perspective. The empirical model of this study augmented the uncertainty-finance accelerator investment model with megatrend variables of a transition to service industry, ageing population and a rise in income inequality. The main estimation results show that they have affected negatively the business investment over the period 1980-2014. The shift-to-service driven investment fall is the price-dominant effect during the transition, which is not necessarily pessimistic news, while the suppressing effects from ageing and a rise in income inequality require adequate policy reactions. In addition, the analysis finds significant negative spillover effects of trade partners’ ageing and income inequality on a country’s own private investment. Based on the empirical results, I expect that the G20’s efforts in inclusiveness with structural reforms will stimulate global business investment.

Keywords: Investment; Megatrends; Aggregate Demand; Uncertainty; G20; Inclusiveness (search for similar items in EconPapers)
JEL-codes: E20 F41 F42 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2017-05-04
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ris:kiepwp:2017_002

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