The role of macroeconomic policies in firms' investments

Francesca Guadagno, UNU-MERIT / Unctad, Genève

Investment is an important determinant of economic growth and development. Governments constantly try to stimulate firms' investments through a variety of economic policies. This paper looks at the role of macroeconomic policies in boosting investment. In particular, it tackles the question of whether macroeconomic policies should aim at creating and maintaining "structural conditions" – through macroeconomic stability and fiscal discipline – or whether they should aim at counteracting business cycles. Using data from the World Bank Enterprise Surveys, the paper estimates a multilevel Heckman selection model of firms’ investment decisions in manufacturing. It tests if firms’ investments depend on the structural or the variable component of macroeconomic policies. The results show that firms’ investments are associated with the variable component more often than with the structural component. The findings are by and large confirmed when we account for possible regional differences. The study supports the view that macroeconomic policies stimulate investment when they counteract business cycles.

Venue: Room D0.03, SBE, Tongersestraat 53, Maastricht

Date: 01 July 2016

Time: 11:00 - 12:15