Why Do U.S. Firms Invest Less over Time?

Abstract

Capital expenditures of US public firms, relative to total assets, decrease by more than half from 1980 to 2020. The decline is pervasive across industries and firms of different characteristics and cannot be explained by the usual determinants of investment and many other seemingly plausible reasons. The decline is consistent with the transformation in production technology – firms rely more on intangible capital and less on fixed assets in production. Industry-level analyses yield supporting evidence. We observe similar declining trend in capital expenditure in other developed countries but not in most emerging markets. • US firm capital expenditures relative to total assets decrease by almost 80% from 1980 to 2020. • The decline is pervasive across industries and firms of different characteristics. • The decline is associated with the transformation in production technology – US firms rely more on intangible capital and less on fixed assets in economic production. • Similar declining trend is observed in other developed countries but not in emerging markets. • Corporate investments should include broader items in addition to capital expenditures.