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Investment-led growth: a solution to the European crisis

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  • Cozzi, Giovanni
  • Griffith-Jones, Stephany

Abstract

A major plank for both recovery of the European economy and for its structural transformation is a significant increase in investment, particularly if linked to innovation. Higher investment can accelerate recovery in the short-term, by contributing to expand aggregate demand, but is as-or more important for increasing the future output and structural transformation. In this paper, we argue that for a significant increase in European Investment to occur, it is necessary to have a two pronged approach. One is to use regional and national development banks and national development banks to help catalyse investment. The other is to reduce the pace of fiscal consolidation, so that public investment does not continue to fall. Using the Cambridge Alphametric Model (CAM) we compare and contrast an austerity scenario, which project current austerity trends in Europe till 2025, with an ‘investment-focused’ scenario where investment rates are increases further in the context of an expansion in lending by both the European Investment Bank (EIB) and national development banks, and at the same time governments pursue more expansionary fiscal policies in order to stimulate investment and economic growth further. Our analysis gives a strong illustration of the positive role that development banks can and do play in helping economic recovery after crisis and in achieving structural transformation.

Suggested Citation

  • Cozzi, Giovanni & Griffith-Jones, Stephany, 2015. "Investment-led growth: a solution to the European crisis," Greenwich Papers in Political Economy 14062, University of Greenwich, Greenwich Political Economy Research Centre.
    • Handle: RePEc:gpe:wpaper:14062
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    Cited by:

    1. Itaman, Richard E. & Awopegba, Oluwafemi E., 2021. "Finance, oil rent and premature deindustrialisation in Nigeria," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 149-161.
    2. Farah Roslan & Borhan Abdullah & Mohd Khairul Amri Kamarudin, 2023. "A panel data method towards the effectiveness of sources of finance in stimulating the realisation of renewable energy technologies: Empirical evidence for Asia‐Pacific," Australian Economic Papers, Wiley Blackwell, vol. 62(4), pages 693-722, December.
    3. Zeilbeck, Severin, 2015. "An investment initiative for fiscally constrained EU member states: The role of synergetic financial instruments," IPE Working Papers 58/2015, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    4. Strike Mbulawa, 2021. "Trade and Investment Led Growth in Southern African Development Community (SADC)," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 9(2), pages 79-88.
    5. Selim Jahan, 2017. "Human Development Report 2016 - Human Development for Everyone," Working Papers id:12021, eSocialSciences.
    6. Mazzucato, Mariana & Semieniuk, Gregor, 2018. "Financing renewable energy: Who is financing what and why it matters," Technological Forecasting and Social Change, Elsevier, vol. 127(C), pages 8-22.
    7. Abiola John Asaleye & Charity Aremu & Adedoyin Isola Lawal & Adeyemi A. Ogundipe & Henry Inegbedion & Olabisi Popoola & Adewara Sunday & Olusegun Barnabas Obasaju, 2019. "Oil Price Shock and Macroeconomic Performance in Nigeria: Implication on Employment," International Journal of Energy Economics and Policy, Econjournals, vol. 9(5), pages 451-457.

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