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Are we investing too little?

Author

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  • Lynn E. Browne
  • Rebecca Hellerstein

Abstract

One of the most disappointing features of U.S. economic performance over the past 20 years has been the slowing of growth in productivity and, as a result, in real incomes. For many, the explanation can be found in the low U.S. saving rate. Since the mid 1980s, national saving has averaged just over 15 percent of GDP, compared to more than 20 percent during the 1970s. Thus, one plausible explanation for slow productivity growth, at least in recent years, could be that our low saving rate is constraining investment and thereby depriving the nation of both the tools and the technologies that would leverage human skills.> This article considers whether the decline in the U.S. saving rate necessarily means that investment spending is \"too low.\" The authors show that private domestic investment has fallen less than one might infer from the decline in saving, and business use of credit markets in the 1990s has remained unusually low even as the cost of capital has fallen. They highlight the growing importance of investment in business equipment, especially computers, during the 1980s and 1990s, and they suggest that this shift in the composition of investment, coupled with the rapid decline in computer prices, may account for some of the inconsistencies in saving and investment patterns. In particular, investment spending may be limited by the ability of businesses to absorb the new information technology.

Suggested Citation

  • Lynn E. Browne & Rebecca Hellerstein, 1997. "Are we investing too little?," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 29-50.
  • Handle: RePEc:fip:fedbne:y:1997:i:nov:p:29-50
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    References listed on IDEAS

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    Cited by:

    1. E. Yndgaard & Palle S. Andersen & Marc Klau, 1999. "Higher profits and lower capital prices: is factor allocation optimal?," BIS Working Papers 65, Bank for International Settlements.
    2. Schündeln, Matthias, 2005. "Modeling Firm Dynamics to Identify the Cost of Financing Constraints in Ghanaian Manufacturing," Proceedings of the German Development Economics Conference, Kiel 2005 29, Verein für Socialpolitik, Research Committee Development Economics.
    3. Sylvain Martel, 2005. "Y a-t-il eu surinvestissement au Canada durant la seconde moitié des années 1990?," Staff Working Papers 05-5, Bank of Canada.
    4. Lynn E. Browne, 1999. "U.S economic performance: good fortune, bubble, or new era?," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 3-20.
    5. Lynn E. Browne & Rebecca Hellerstein & Jane Sneddon Little, 1998. "Inflation, asset markets, and economic stabilization: lessons from Asia," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 3-32.
    6. Luci Ellis & Kathryn Smith, 2010. "The Global Upward Trend in the Profit Share," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(3), pages 231-256.

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