Marco Buti, Philipp Mohl, 04 June 2014

Investment in the Eurozone is forecast to remain below trend until 2015, with a particularly large shortfall in the periphery. Low investment reduces aggregate demand, thus lowering short-term growth, and it also hampers medium-term growth through its effect on the capital stock. This column highlights three causes of low Eurozone investment – reduced public investment, financial fragmentation, and heightened uncertainty – and proposes a series of remedies.

Carl Kitchens, 29 January 2014

Economists have found that large-scale infrastructure investments tend to increase economic growth and reduce poverty. However, there has been relatively little research on the effects of smaller, more targeted investment projects. This column discusses recent research on the effects of the US Rural Electrification Administration, which provided subsidised loans for connecting farms to the electric grid. Counties that received electricity through the REA witnessed smaller declines in agricultural productivity, smaller declines in land values, and more retail activity than similar counties that did not.

Charles Yuji Horioka, Akiko Terada-Hagiwara, 25 January 2014

Corporate saving has sharply increased over the last two decades, but there has been relatively little research on its determinants. This column presents recent work that estimates Asian firms’ cash flow sensitivity of cash. The impact of cash flow on the increase in firms’ cash holdings is positive and statistically significant, and larger and more highly significant for smaller firms. Since smaller firms are more likely to be financially constrained, these results suggest that Asian firms – especially smaller ones – save more when their cash flow increases in order to finance future investments

Indraneel Chakraborty, Itay Goldstein, Andrew MacKinlay, 25 November 2013

Higher asset prices increase the value of firms’ collateral, strengthen banks’ balance sheets, and increase households’ wealth. These considerations perhaps motivated the Federal Reserve’s intervention to support the housing market. However, higher housing prices may also lead banks to reallocate their portfolios from commercial and industrial loans to real-estate loans. This column presents the first evidence on this crowding-out effect. When housing prices increase, banks on average reduce commercial lending and increase interest rates, leading related firms to cut back on investment.

Peter Gal, Gabor Pinter, 21 September 2013

Renting capital goods makes up 20% of total capital expenses by US companies and this type of capital spending increases in downturns. This column discusses research showing that the systematic pattern of corporate leasing can be linked to credit constraints. This means that a robust rental sector has the potential to mitigate the negative effects of financial disruptions when obtaining credit becomes difficult.

Hans Degryse, Liping Lu, Steven Ongena, 21 August 2013

Non-bank financing originating in the shadow banking system has increasingly become an issue for policymakers. This column argues that informal financing has, in fact, been an essential element of corporate performance in China. Through reviewing the interaction between informal and formal financing, evidence suggests that informal financing simultaneously granted with formal financing (co-funding) is helpful for growth, especially for small firms.

Eduardo Cavallo, 03 April 2013

Latin America and the Caribbean have less infrastructure than the rest of the world. What they have is also of much poorer quality. This column argues that to reap the rewards of good infrastructure, Latin American and Caribbean countries must increase both investment and saving over the long-term by creating institutional capacity, strengthening the rule of law, and building stable macroeconomic-policy frameworks. It won’t be easy.

Ron Alquist, Linda Tesar, Rahul Mukherjee, 26 March 2013

Is foreign direct investment different in times of crisis? This column tests the ‘fire-sale foreign direct investment hypothesis’, finding that acquisitions undertaken during crisis periods do not fundamentally differ from those undertaken during non-crisis periods. The fire-sale foreign direct investment notion may well be ‘all smoke, and no fire’.

Michael Stolpe, 22 March 2013

The crisis has shot holes in government budgets devoted to pro-growth public goods. This column argues that health-related public goods support long-term economic growth. Governments may be more inclined to focus on spending related directly to jobs, such as education and welfare-to-work programmes, but health should not be forgotten

Pierre-Richard Agénor, Otaviano Canuto, Michael Jelenic, 21 December 2012

Many of the emerging economies of the last two decades are now ensnared by ‘the middle-income trap’, in which middle-income countries don’t quite push through to high income status. This column presents recent research suggesting that, if governments act early and decisively to improve access to advanced infrastructure, enhance the protection of property rights, and reform labour markets, trapped economies – like their East Asian counterparts in the 1990s – can push on through.

Reda Cherif, Fuad Hasanov, 10 November 2012

Policymakers in many commodity-exporting countries confront the question of how much to consume, save, and invest out of revenues from commodity exports. This column says policy should focus on improving productivity in the tradeable sector and reducing volatility through diversifying this sector. This would lower precautionary saving needs, increase investment, raise consumption, and improve welfare.

Stijn Claessens, Neeltje van Horen, 31 January 2012

How did foreign banks adjust their investment and lending decisions during the global financial crisis? This column uses a new and comprehensive database to show that the crisis dramatically halted foreign direct investment in banking and that foreign banks often cut back on lending more than their domestic competitors. While exits have so far been limited, this is likely to change in the coming years.

Dimitri Vayanos, Paul Woolley, 18 January 2012

According to classical economics, there are no gains to be made in an efficient market. Yet markets are often far from efficient and the gains are often far from insignificant. So should investors follow the herd or rely on best guesses of fair value? This column argues that the optimal strategy depends on whether you are in for the short or long term.

Ke Tang, Wei Xiong, 30 November 2010

In recent years, hundreds of billions of dollars of investment has flowed into commodities markets. This column describes why and how commodities markets have grown so rapidly and discusses some policy implications.

Yuriy Gorodnichenko, Monika Schnitzer, 08 April 2010

How can poor countries stop playing catch up? The question continues to puzzle economists. This column argues that the innovative and productive activities of domestic firms in emerging markets are inhibited by financial frictions. Financial reforms will be most effective if they target the vulnerable small and young domestic firms and those in the service sector.

Denis Drechsler, David Hallam, 29 June 2009

Foreign acquisitions of farmland in Africa and elsewhere have become a cause of concern. This column says that international investments are inevitable – the question is how to reconcile the objectives of land purchasers with the investment needs of developing countries.

Andrew Ellul, Marco Pagano, Fausto Panunzi, 03 October 2008

The authors of DP6977 investigate the effect of inheritance law on investment in family firms in 32 countries.

Thorvaldur Gylfason, 25 January 2008

Are some African economies poised for prolonged growth and human development? This article assesses African development prospects using Iceland’s economic ascent over the last century as a benchmark.

Kathryn Graddy, 04 January 2008

The market for unusual assets has grown in recent years. Here is a column that reviews the evidence on the market for violins, showing that they have provided a relatively stable return, with low, and in some cases negative, correlation to other assets.


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