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Oil shocks and firm investment on the two sides of the Atlantic

Author

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  • Anaya Longaric, Pablo
  • Kostakis, Vasileios
  • Parisi, Laura
  • Vinci, Francesca

Abstract

Europe’s lack of energy independence raises concerns about its vulnerability to external energy shocks, such as Russia’s 2022 invasion of Ukraine. This paper examines how energy shocks impact firm-level investment, comparing European and US firm responses. Using global oil supply news shocks, S&P’s Compustat data, and a local projections approach, the study reveals that European firms significantly cut capital and R&D expenditures after an oil shock, unlike US firms. The disparity is primarily driven by financially constrained firms in energy-intensive sectors. Additionally, differences in capital market structures play a role, as European firms relying more on market-based financing reduce investment by less. Lastly, our analysis confirms that the US shale revolution was a contributing factor in shaping Europe’s relative vulnerability. These findings highlight the need for national and EU policies to securethe energy supply, lower prices, and deepen capital markets, enhancing resilience and future competitiveness amid energy volatility. JEL Classification: D22, E22, F15, Q43

Suggested Citation

  • Anaya Longaric, Pablo & Kostakis, Vasileios & Parisi, Laura & Vinci, Francesca, 2025. "Oil shocks and firm investment on the two sides of the Atlantic," Working Paper Series 3116, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20253116
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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F15 - International Economics - - Trade - - - Economic Integration
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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