Low interest rates, low productivity, low growth? A multi-sector case study of UK-based firms’ funding and investment strategies in the context of loose monetary policy

John Evemy, Craig Berry and Edward Yates

New Political Economy, 2024, vol. 29, issue 2, 240-259

Abstract: Low productivity growth in a low interest rate environment is a perennial problem for both UK monetary policy and the UK economy more generally. Through a comparative case study of eight firms across two economic sectors during 2012–6 we identify two shortcomings in the current productivity literature. The first is the importance of the order in which firms make investment and funding decisions. Investment decisions tend to predate questions of firm financing, implying loose monetary policy does not drive investment, but rather facilitates it. Secondly, we emphasise the importance of investment quality for funding choices. External financing such as credit or stock issues is predominantly used to fund expansionary but not productivity focussed investments. This implies monetary policy may have worsened the UK’s productivity problem by facilitating expansionary over productivity enhancing investment strategies. Our findings are broadly consistent with the political economy literature on the UK economy, but we argue that research framed by the ‘growth model’ concept has not successfully illuminated firm-level dynamics, and relies on mainstream macroeconomics to explain low productivity. We therefore argue for a research agenda that moves beyond aggregate measures and incorporates questions about the quality of economic activity.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/13563467.2023.2240237 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:cnpexx:v:29:y:2024:i:2:p:240-259

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/cnpe20

DOI: 10.1080/13563467.2023.2240237

Access Statistics for this article

New Political Economy is currently edited by Professor Colin Hay

More articles in New Political Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().