Randolph Bruno, Nauro Campos, Saul Estrin, 17 July 2021

Do different economic integration arrangements vary in terms of their capacity to attract foreign direct investment? This column uses a structural gravity framework on annual bilateral FDI data for 142 countries between 1985 and 2018 to revisit this question. It finds that deep integration in the form of EU membership increases FDI by about 60% from outside the EU and by about 50% from within the EU. The effect of EU membership on FDI appears to be significantly larger than that from the less deep integration arrangements (EFTA, NAFTA, or MERCOSUR), with the Single Market the cornerstone of this differential impact. 

Dalya Elmalt, Deniz Igan, Divya Kirti, 23 June 2021

Sustainable investment incorporating environmental, social, and governance concerns is increasingly used as an emissions-reducing policy. However, little is known about its effectiveness. This column examines the relationship between ESG metrics and emission growth across 20 countries and finds little evidence to suggest that higher ESG metrics are associated with reduced emission growth.

Miguel Ampudia, Thorsten Beck, Alexander Popov, 11 June 2021

The trade-off between stability and growth has long been a subject of policy debate and informs views on the extent to which the supervision of banks should be centralised. This column presents analysis of the ECB’s Single Supervisory Mechanism, using the announcement of the mechanism and its implementation as a quasi-natural experiment. It finds that centralised bank supervision is associated with a decline in lending to firms, which is accompanied by a shift away from intangible investment and towards more cash holdings and higher investment in easily collateralisable physical assets.

Sebastian Siegloch, Nils Wehrhöfer, Tobias Etzel, 04 June 2021

Increasing regional inequality has become a major concern for policymakers both in the US and Europe. This column investigates the effects of a large place-based investment subsidy targeted at manufacturing firms in East Germany. It shows that a decrease in the subsidy rate leads to a decrease in manufacturing employment, highlighting spillovers to untreated sectors in treated counties and untreated counties connected via trade and local taxes. It also finds that the place-based policy is at least as efficient as cash transfers for the unemployed but is more effective in curbing regional inequality overall.

Debora Revoltella, Rolf Strauch, 24 May 2021

Jump-starting investment after Covid-19 is a crucial challenge for the sustainability of the recovery. This column highlights that incentives to re-launch investment remain crucial. Viable and new firms need to have access to additional new financing as we emerge from the crisis. Debt finance cannot be the only option. Incentives for recapitalisation of companies and access to equity or equity-type finance become increasingly important. The legacies of the pandemic in the financial sector need to be worked out quickly. European and government support complementing post-pandemic bank and capital market financing will be critical to a strong and sustained recovery. 

Hans Koster, Takatoshi Tabuchi, Jacques-François Thisse, 09 May 2021

Modern transportation infrastructure can help foster cheaper travel and a better-connected economy. This column shows that improvements in transportation can affect the location choices of firms in ways that are often beneficial to large regions, but may be detrimental to small intermediate regions through job losses. Using data from Japan’s high speed rail network, the authors confirm that ‘in-between’ municipalities that are connected to the network witness a sizeable decrease in employment.

Andrés Rodríguez-Pose, Roberto Ganau, Kristina Maslauskaite, Monica Brezzi, 15 December 2020

Does institutional quality mitigate the negative returns of credit rationing on labour productivity? Using data on a large sample of manufacturing firms in 11 European countries, this column demonstrates that this is indeed the case, especially for micro, small, and medium-sized firms. The negative effects of credit constraints on productivity are mitigated in those areas of Europe with high-quality governance. ‘Good’ regional institutions not only drive firm-level productivity but also, and in a more indirect way, reduce the negative productivity returns of credit constraints.

Adrien Matray, 05 December 2020

Academic research has so far had little to say on the impact of an increase in payout taxes on firm behaviour and the allocation of capital across firms. Using French administrative tax files that cover the universe of firms, this column tracks firm outcomes over the period 2008–2017 and estimates the effect of a steep increase in the dividend tax rate in 2013. It finds that the tax reform led to increased investment and cash holding, improved allocation of capital, and no discernible reduction in investment even among equity-dependent firms.

Kim Abildgren, Andreas Kuchler, 01 December 2020

The extent to which negative monetary policy interest rates stimulate the economy has a subject of recent discussion among academics and policymakers. Using new comprehensive Danish microdata, this column shows that firms exposed to negative deposit rates to a higher degree than other firms increase their fixed investments and employment – after due control for changes in the level of interest rates. These findings are suggestive of an additional monetary transmission channel operating as nominal interest rates cross zero and become negative.

Emanuele Ciani, Guido de Blasio, Samuele Poy, 11 July 2020

Large transportation infrastructure projects are considered a promising investment to spur economic growth in lagging areas by many policymakers. This column presents historical evidence that questions this assumption. It studies the most important Italian infrastructure project in the aftermath of WWII: the 440km freeway connecting the Southern regions of Italy. It finds, that while the freeway caused a significant reorganization of both economic activity and population from places far from the freeway to locations close to it, there is no evidence that it had any long-run effect on economic growth of the Southern region as a whole.

Thorsten Beck, Robin Döttling, Thomas Lambert, Mathijs van Dijk, 02 July 2020

Banks fulfil several key functions in the economy, from improving the allocation of capital by extending credit to facilitating consumption smoothing through saving and borrowing. The creation of liquidity lies at the centre of much of a bank’s operations. This column provides evidence that banks' liquidity creation is associated with higher economic growth across countries and industries, with important non-linear effects. Results suggest that in the new ‘knowledge economy’ banks will have a more limited role, compared to other types of financial intermediaries and markets.

Johannes Bubeck, Angela Maddaloni, José-Luis Peydró, 23 April 2020

The way that banks in the euro area react to negative central bank interest rates may be closely linked to their individual funding structure. This column suggests that they do not generally pass negative rates on to their depositors, and that they search for yield by investing in riskier securities. New evidence suggests that their investments are directed more towards securities issued by the private sector and securities denominated in dollars.

Stefano Bolatto, Alireza Naghavi, Gianmarco Ottaviano, Katja Zajc Kejžar, 16 April 2020

Contracting institutions have proved to be pivotal for supply chain organisation, and empirical evidence has shown that firms rely on outsourcing to deal with hold-up inefficiencies induced by contract incompleteness. For intangible assets, vertical integration is one strategy to prevent knowledge dissipation. This column presents new research that illustrates how firms organise their value chain and their ‘knowledge’ under imperfect protection of intellectual property rights. The results suggest that the quality of institutions protecting tangible and intangible assets may have opposite effects on organisational choices along the supply chain.

Michal Gradzewicz, 26 March 2020

Capital investment at firm level can have both short-run and long-run effects on labour productivity. This column uses evidence from Poland to explore the relationship further. It is clear that different types and sizes of firms, from various sectors, demonstrate a range of trends. What is notable is that the impact of ‘learning by doing’ runs deep and affects the initial decision process of the capital investment itself. 

Laurence Boone, Debora Revoltella, 06 December 2019

For the past two years, global growth outcomes and prospects have steadily deteriorated, while investment growth has collapsed. This is particularly the case in Europe. This column argues that reducing policy uncertainty, rethinking fiscal policy, and acting vigorously to address the challenges raised by digitalisation, climate change, and persistent inequalities all have the potential to reverse the current slippery trend and lift investment and living standards. 

Carlo Altavilla, Lorenzo Burlon, Mariassunta Giannetti, Sarah Holton, 08 November 2019

Economists and policymakers continue to question the effectiveness of monetary policy when an economy faces near-zero or sub-zero interest rates. Sceptics argue that central banks cannot stimulate lending, and may indeed decrease the loan supply, by setting negative interest rates. This column shows that negative rates do not impede the transmission of monetary policy from banks to deposit holders because firms do not withdraw cash in response to negative rates the way households might. In fact, sub-zero rates may even stimulate the economy by encouraging firms to invest.

Nicholas Bloom, Philip Bunn, Scarlet Chen, Paul Mizen, Pawel Smietanka, 25 September 2019

The Decision Maker Panel, a monthly survey of CFOs from around 3,000 UK businesses, provides data on the uncertainty created by the Brexit process and the effect that is having on British businesses. This column summarises the latest results up until end August 2019, which reveal a broad-based rise in the proportion of respondents reporting that Brexit was one of their top three sources of uncertainty in recent months to close to the highest level since the EU referendum.  That uncertainty is also expected to be more persistent than previously thought.

Ralph Koijen, François Koulischer, Benoît Nguyen, Motohiro Yogo, 18 September 2019

Recent economic performance in the euro area has once again raised the possibility of the ECB conducting asset purchases. This column sorts security-level portfolio holdings data by investor type and across countries in the euro area to study portfolio rebalancing during the ECB purchase programme from 2015-17. There was a material difference in the impact on investors by geography – with foreign investors selling more than half of purchases.

Christoph Boehm, 07 September 2019

Fiscal stimulus packages typically feature large investment in infrastructure. The column argues that the fiscal multiplier associated with government investment during the Great Recession was near zero. Meanwhile, the government consumption multiplier was around 0.8. Estimates of the multiplier for total government purchases do not distinguish these two effects, which may affect their validity.

Robert J. Gordon, Hassan Sayed, 29 August 2019

Since 2005, productivity growth in the US and Europe has dipped below 1%. Using new industry-level from the US and ten EU countries, this column shows that that the industrial composition of the slowdown was similar in Europe and the US. Falling multifactor productivity growth explains both the magnitude and composition of falling productivity growth on both sides of the Atlantic. Decelerating technical change, rather than slowing investment, was the primary driving force in the transatlantic slowdown. 

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