Economics at your fingertips  

Investment as a transmission mechanism from weak demand to weak supply and the post-crisis productivity slowdown

Patrice Ollivaud, Yvan Guillemette and David Turner

No 1466, OECD Economics Department Working Papers from OECD Publishing

Abstract: Current weak labour productivity growth in many OECD countries reflects historically weak contributions from both total factor productivity (TFP) growth and capital deepening. The slowdown in trend productivity growth in the pre-crisis period is mostly explained by a long-established slowdown in TFP growth, but since the crisis the further deceleration is mainly due to weak capital deepening, a development apparent in practically every OECD country. Much of the weakness in the growth of the capital stock since the financial crisis can be explained by an accelerator response of investment to continued demand weakness, leading in turn to a deterioration of potential output via a hysteresis-like effect. For the most severely affected economies, the financial crisis is estimated to have reduced potential output by more than 2% via this transmission mechanism. In many OECD countries, declining government investment as a share of GDP has further exacerbated post-crisis weakness in capital stock growth, both directly and probably indirectly via adverse spillover effects on business investment. Finally, over a period when the use of conventional macro policy instruments was constrained, the slower pace of structural reform represents a missed opportunity, not least because more competition-friendly product market regulation could have boosted both investment and potential growth.

Keywords: accelerator effect; capacity; capital stock; financial crisis; global financial crisis; hysteresis; investment; potential output (search for similar items in EconPapers)
JEL-codes: E22 E27 E32 E65 E66 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mac and nep-tid
Date: 2018-04-16
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) (text/html)

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:

Access Statistics for this paper

More papers in OECD Economics Department Working Papers from OECD Publishing Contact information at EDIRC.
Bibliographic data for series maintained by ().

Page updated 2019-07-21
Handle: RePEc:oec:ecoaaa:1466-en