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Uncertainty and the slowdown of capital accumulation in Europe

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  • Paola Caselli
  • Patrizio Pagano
  • Fabiano Schivardi

Abstract

The slowdown in the process of capital formation in continental Europe in the 1990s is analysed. Sector-level data from the OECD's International Sectoral Data Base (ISDB) are used. Econometric estimates of an investment function indicate structural instability in the early 1990s and, specifically, a break in the coefficient linking the growth of capital stock to demand. This result neither seems to be related to non-linearities in the relationship between capital formation and expected demand, nor to the sectoral composition of European economies. Evidence is found that the drop in the accelerator is at least partly attributable to greater demand uncertainty in the 1990s as compared with the earlier period.

Suggested Citation

  • Paola Caselli & Patrizio Pagano & Fabiano Schivardi, 2003. "Uncertainty and the slowdown of capital accumulation in Europe," Applied Economics, Taylor & Francis Journals, vol. 35(1), pages 79-89.
    • Handle: RePEc:taf:applec:v:35:y:2003:i:1:p:79-89
    DOI: 10.1080/00036840210158958
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    References listed on IDEAS

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    1. Paola Caselli & Patrizio Pagano & Fabiano Schivardi, 2001. "Investment and Growth in Europe and in the United States in the Nineties," Rivista di Politica Economica, SIPI Spa, vol. 91(8), pages 3-36, October.
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    Cited by:

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    2. Bontempi, Maria Elena & Golinelli, Roberto & Parigi, Giuseppe, 2010. "Why demand uncertainty curbs investment: Evidence from a panel of Italian manufacturing firms," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 218-238, March.
    3. Kose,Ayhan & Ohnsorge,Franziska Lieselotte & Ye,Lei Sandy & Islamaj,Ergys, 2017. "Weakness in investment growth : causes, implications and policy responses," Policy Research Working Paper Series 7990, The World Bank.
    4. Femminis, Gianluca, 2008. "Risk-aversion and the investment-uncertainty relationship: The role of capital depreciation," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 585-591, March.
    5. Catherine Fuss & Philip Vermeulen, 2008. "Firms' investment decisions in response to demand and price uncertainty," Applied Economics, Taylor & Francis Journals, vol. 40(18), pages 2337-2351.
    6. Vytautas Tvaronavičius & Manuela Tvaronavičiene, 2007. "Role of fixed investments in economic growth of country: Lithuania in European context," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 9(1), pages 57-64, December.
    7. M. Ayhan Kose & Franziska Ohnsorge, 2023. "Slowing Growth: More Than a Rough Patch," CAMA Working Papers 2023-23, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    8. Strauss, Ilan & Yang, Jangho, 2020. "Corporate Secular Stagnation: Empirical Evidence on the Advanced Economy Investment Slowdown," INET Oxford Working Papers 2019-16, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    9. Stamm,Kersten Kevin & Vorisek,Dana Lauren, 2023. "The Global Investment Slowdown : Challenges and Policies," Policy Research Working Paper Series 10364, The World Bank.
    10. Döhrn, Roland & Barabas, György & Fuest, Angela & Gebhardt, Heinz & an de Meulen, Philipp & Micheli, Martin & Rujin, Svetlana & Zwick, Lina, 2015. "Die wirtschaftliche Entwicklung im Inland: Konjunktur bleibt aufwärts gerichtet," RWI Konjunkturberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, vol. 66(3), pages 39-98.
    11. Gianluca Femminis, 2019. "Risk aversion heterogeneity and the investment–uncertainty relationship," Journal of Economics, Springer, vol. 127(3), pages 223-264, August.
    12. Gianluca Femminis, 2006. "Risk‐Aversion, Optimal Leverage And The Investment–Uncertainty Relation," Metroeconomica, Wiley Blackwell, vol. 57(2), pages 214-238, May.

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