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Investment as the key to recovery in the euro area?

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  • Gros, Daniel

Abstract

Investment has declined in the euro area since the start of the economic and financial crisis, but this does not mean that there is necessarily an ‘investment gap’, explains Daniel Gros in this CEPS Policy Brief. Investment was probably above a sustainable level due to the credit boom before 2007. Moreover, the fall in the euro area’s potential growth - due to a combination of a sharp demographic slowdown and lower total factor productivity (TFP) growth - should also lead to a permanently lower investment rate. Increasing the investment rate might thus be the wrong target for economic policy. The author advises that the aim of economic policy should be to increase consumption, rather than investment overall. Increasing infrastructure investment might be justified in some member countries, but it is not a ‘free lunch’ when efficiency levels are low, which seems to be the case in some of the financially stressed euro area countries.

Suggested Citation

  • Gros, Daniel, 2014. "Investment as the key to recovery in the euro area?," CEPS Papers 9821, Centre for European Policy Studies.
    • Handle: RePEc:eps:cepswp:9821
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    File URL: http://www.ceps.eu/system/files/PB%20326%20DG%20What%20role%20for%20investment%20final.pdf
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    References listed on IDEAS

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    1. Manove, Michael & Padilla, A Jorge & Pagano, Marco, 2001. "Collateral versus Project Screening: A Model of Lazy Banks," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 726-744, Winter.
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    Cited by:

    1. Duffy, David & McQuinn, Kieran & Byrne, David & Morley, Ciara, 2014. "Quarterly Economic Commentary, Winter 2014," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20144.
    2. Belke, Ansgar & Klose, Jens, 2018. "Equilibrium real interest rates, secular stagnation, and the financial cycle: Empirical evidence for euro-area member countries," Ruhr Economic Papers 743, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    3. Daniel Gros & Philipp-Leo Mengel & Giorgio Presidente, 2025. "The EU investment gap is really an R&D gap," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 52(3), pages 667-682, September.
    4. P. Butzen & S. Cheliout & E. De Prest & S. Ide & W. Melyn, 2016. "Why is investment in the euro area continuing to show only weak recovery ?," Economic Review, National Bank of Belgium, issue ii, pages 81-98, september.
    5. Vermeulen, Philip, 2016. "The recovery of investment in the euro area in the aftermath of the great recession: how does it compare historically?," Research Bulletin, European Central Bank, vol. 28.
    6. Ansgar Belke & Jens Klose, 2017. "Equilibrium Real Interest Rates and Secular Stagnation: An Empirical Analysis for Euro Area Member Countries," Journal of Common Market Studies, Wiley Blackwell, vol. 55(6), pages 1221-1238, November.
    7. Mr. Bas B. Bakker, 2019. "What Happens if Central Banks Misdiagnose a Slowdown in Potential Output," IMF Working Papers 2019/208, International Monetary Fund.
    8. Smarandoiu (Sanda) Luana Alexandra & Sanda Dragos Constantin, 2015. "Challenges And Achievements Towards 2020’S Smart, Sustainable And Inclusive Growth. A Critical Evaluation," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 3, pages 211-217, June.
    9. Karel Brůna & Jiří Pour, 2023. "Population aging and structural over/underinvestment," Economic Change and Restructuring, Springer, vol. 56(4), pages 2339-2383, August.
    10. Kolasa, Aleksandra & Rubaszek, Michał, 2016. "The effect of ageing on the European economies in a life-cycle model," Economic Modelling, Elsevier, vol. 52(PA), pages 50-57.
    11. Erika Urbankova & David Krizek, 2020. "Homogeneity of Determinants in the Financial Sector and Investment in EU Countries," Economies, MDPI, vol. 8(1), pages 1-17, February.
    12. Luigi Bonatti & Andrea Fracasso, 2017. "Addressing the Core-Periphery Imbalances in Europe: Resource Misallocation and Expansionary Fiscal Policies," EconPol Working Paper 6, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    13. Gerhard Fenz & Christian Ragacs & Martin Schneider & Klaus Vondra & Walter Waschiczek, 2015. "Causes of declining investment activity in Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 12-34.
    14. Luigi Bonatti, 2016. "Anemic economic growth in advanced economies: structural factors and the impotence of expansionary macroeconomic policies," DEM Working Papers 2016/11, Department of Economics and Management.
    15. Klose, Jens, 2020. "Equilibrium real interest rates for the BRICS countries," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).
    16. Belke, Ansgar & Klose, Jens, 2020. "Equilibrium real interest rates and the financial cycle: Empirical evidence for Euro area member countries," Economic Modelling, Elsevier, vol. 84(C), pages 357-366.
    17. Byrne, David & McQuinn, Kieran, 2014. "Irish Economic Performance 1987-2013: A Growth Accounting Assessment," Research Notes RN2014/4/1, Economic and Social Research Institute (ESRI).
    18. Philip Vermeulen, 2016. "The recovery of investment in the euro area in the aftermath of the great recession: how does it compare historically?," Research Bulletin, European Central Bank, vol. 28.
    19. repec:ecb:ecbrbu:2016:0028:1 is not listed on IDEAS

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