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Uncertainty and the slowdown of capital accumulation in Europe

  • Paola Caselli
  • Patrizio Pagano
  • Fabiano Schivardi

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.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 35 (2003)
Issue (Month): 1 ()
Pages: 79-89

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Handle: RePEc:taf:applec:v:35:y:2003:i:1:p:79-89
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  1. Ricardo J. Caballero & Eduardo M. R. A. Engel, 1999. "Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach," Econometrica, Econometric Society, vol. 67(4), pages 783-826, July.
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  3. 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.
  4. Luigi Guiso & Giuseppe Parigi, 1999. "Investment And Demand Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 185-227, February.
  5. Abel, Andrew B & Eberly, Janice C, 1996. "Optimal Investment with Costly Reversibility," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 581-93, October.
  6. Nicholas Bloom & Steve Bond & John Van Reenen, 2001. "The dynamics of investment under uncertainty," IFS Working Papers W01/05, Institute for Fiscal Studies.
  7. Jorgenson, Dale W, 1971. "Econometric Studies of Investment Behavior: A Survey," Journal of Economic Literature, American Economic Association, vol. 9(4), pages 1111-47, December.
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