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The Decline in Corporate Investment

Author

Listed:
  • Vito Gala

    (University of Pennsylvania)

  • Hongxun Ruan

    (Wharton School)

  • Joao Gomes

    (University of Pennsylvania)

Abstract

We use a dynamic stochastic model of firm investment to investigate quantitatively the causes behind the ongoing decline in corporate investment. Our analysis focuses on three of the most commonly proposed explanations: (i) a secular decline in productivity growth; (ii) a tightening of financial constraints in the period surrounding the Great Depression; and (iii) the recent increase in policy uncertainty. We find that all three factors are important to account for the sharp decline in investment during the Great Recession. However only slow productivity growth can best account for the long term decline in investment.

Suggested Citation

  • Vito Gala & Hongxun Ruan & Joao Gomes, 2018. "The Decline in Corporate Investment," 2018 Meeting Papers 269, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:269
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    References listed on IDEAS

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