The Drivers of Italy’s Investment Slump During the Double Recession

Fabio Busetti, Claire Giordano and Giordano Zevi

Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, 2016, vol. 2, issue 2, No 1, 143-165

Abstract: Abstract This paper examines the causes of the exceptionally marked fall in non-construction investment in Italy since 2007. In terms of sector-specific contributions, non-financial private services accounted for most of the decline in the aggregate investment rate, but the reallocation of value added away from industry was also a drag on investment. In concordance with survey findings, an aggregate econometric model of investment indicates that even during the recent double recession the most important driver of capital accumulation was demand conditions. Regarding other determinants of investment it is found that: (i) the user cost of capital had a substantial negative impact in the acute phases of the sovereign debt crisis, but since 2013 its contribution has turned positive; (ii) the constraints imposed by tight credit supply conditions were particularly severe in 2009 and 2012; (iii) uncertainty provided a sizeable drag on investment growth not only during the global financial crisis but also in 2013–2014, being one of the main factors behind the delayed recovery of the Italian economy from the sovereign debt crisis. The significance of these determinants of investment is confirmed also by a disaggregated panel data analysis for thirteen manufacturing branches.

Keywords: Non-construction investment; Uncertainty; Credit constraints; Sectorial analysis (search for similar items in EconPapers)
JEL-codes: E22 E27 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (11)

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Working Paper: Main drivers of the recent decline in Italy’s non-construction investment (2015)
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DOI: 10.1007/s40797-016-0028-9

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