 Business investment in euro area countries: the role of institutions and debt overhangAgostino Consolo, Marco Langiulli and David Sondermann Applied Economics Letters, 2019, vol. 26, issue 7, 561-575 Abstract: The recovery of business investment in the euro area has been sluggish, thereby hampering aggregate demand in the short term and potential growth in the long run. While we show that business investment can be associated to cost and supply of credit, cyclical demand conditions and economic uncertainty. But we also find evidence of additional factors. We suggest that there exists a link between excess leverage and weak economic institutions on the one hand and subdued investment growth on the other hand. Moreover, in euro area countries with both larger excess leverage and weaker economic institutions, the link with business investment is found to be stronger. The link between investment and weak institutions or excess leverage highlights the importance of structural reforms aimed at easing business regulations, reducing administrative burdens and increasing the efficiency of insolvency frameworks. These reforms are thus expected to reduce distortions in the allocation of resources and be supportive of a smoother deleveraging process, hence fostering business investment. Date: 2019 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:26:y:2019:i:7:p:561-575 Ordering information: This journal article can be ordered from DOI: 10.1080/13504851.2018.1488041 Access Statistics for this article Applied Economics Letters is currently edited by Anita Phillips More articles in Applied Economics Letters from Taylor & Francis Journals |
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