What Is Behind the Weakness in Global Investment? /

This paper contributes to the ongoing policy debate on the factors behind this weakness by analyzing the role of growth prospects and uncertainty in explaining developments in non-residential private business investment in large advanced economies since the crisis. [...] S. Article IV, annual) Last observation: 2014 2. Regression Models of Private Business Investment 2.1 The standard accelerator model of investment Our starting point for the analysis of the drivers of business investment is the standard accelerator model, in which changes in the level of capital can be explained by changes in the level of output. [...] Our measure of investment aims to abstract from the impact of the various housing crises and the potential countercyclical response of government investment.2 2.2 The financial-variable augmented model of investment In a second step, we augment the accelerator model with explanatory variables based on similar studies on the determinants of private business investment (see Barkbu et al. [...] By focusing on the volatility in the unforecastable 6. To account for the fact that the forecast horizon changes from the first quarter to the last quarter of the year (i.e., the 2016 annual growth forecast for all of the quarters in 2015 in the example above), we tried a fixed-horizon forecast of one year using the methodology proposed by Dovern et al. [...] All variables are statistically significant at the 10 per cent level of significance, except for the cost of capital variable.17 The foreign outlook variable is also statistically significant, pointing to the importance of growth expectations in the investment decision.