Oil shocks and firm investment on the two sides of the Atlantic

Pablo Anaya Longaric, Vasileios Kostakis, Laura Parisi and Francesca Vinci

No 3116, Working Paper Series from European Central Bank

Abstract: Europe’s lack of energy independence raises concerns about its vulnerability to external energy shocks, such as Russia’s 2022 invasion of Ukraine. This paper examines how energy shocks impact firm-level investment, comparing European and US firm responses. Using global oil supply news shocks, S&P’s Compustat data, and a local projections approach, the study reveals that European firms significantly cut capital and R&D expenditures after an oil shock, unlike US firms. The disparity is primarily driven by financially constrained firms in energy-intensive sectors. Additionally, differences in capital market structures play a role, as European firms relying more on market-based financing reduce investment by less. Lastly, our analysis confirms that the US shale revolution was a contributing factor in shaping Europe’s relative vulnerability. These findings highlight the need for national and EU policies to securethe energy supply, lower prices, and deepen capital markets, enhancing resilience and future competitiveness amid energy volatility. JEL Classification: D22, E22, F15, Q43

Keywords: competitiveness; corporate investment; energy; oil shocks (search for similar items in EconPapers)
Date: 2025-09
New Economics Papers: this item is included in nep-eec and nep-ifn
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253116

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