Slowdown In Investment Research Articles

External debt burden and economic growth: evidence from Central Asia

ABSTRACT The main goal of this article is to analyse the effects of external debt accumulation on economic growth amongst Central Asian countries. We have applied a time-series methodology utilising annual data from 2000–2017 to show that external debt has had a negative and significant effect on economic growth in Central Asian countries. We found that debt overhang will cause a higher marginal tax rate on the future output of each country, thus leading to an investment slowdown and reducing output growth by limiting productivity expansion. Moreover, we can affirm that the negative effect of external debt is often associated with the poor level of institutions and governance of Central Asian countries.

Assessment of the level of IT-technologies development in the activities of agricultural enterprises

To a large extent, in the domestic branch of agriculture, the decline in the technological level of production, the slowdown of investment and innovation processes are caused by the insufficient level of information and technological support of their economic activities. The use of modern information technologies in comparison with traditional ones for agriculture has a significant advantage in terms of speed and quality of data transmission, improving the accumulation, analysis, and use of information. The purpose of the study is to assess the level of validity of decision-making by the management of agricultural enterprises in the sphere of IT-technologies of their economic activity. The level of informatization and computerization of separate spheres of activity of agricultural enterprises in Rostov region has been assessed. The existence of a direct relationship between the size of the enterprise and the level of its informatization has been substantiated. It was revealed that there is no connection between the list of spheres of economic activity, within which agricultural enterprises introduce information and computer technologies, and the spheres of economic activity, in which the management expects significant positive changes in case of development of the corresponding processes. The main problems of using Internet technologies in agricultural enterprises have been identified.

Drivers of corporate investment in India: The role of firm-specific factors and macroeconomic policy

India's investment slowdown has proved detrimental to India's growth trajectory. Prior literature has addressed the investment slowdown at macro and micro levels; however, the asymmetric effect of firm-specific variables on India's investment drivers has been overlooked. This study attempts to bridge the gap by employing firm-level data from 2001 to 2019. The findings reveal that the investment slowdown has been asymmetric with respect to the firm size and leverage, particularly in the construction, mining, and service sectors. Furthermore, this study finds that the positive impact of a higher leverage rate on investment is offset amidst a tight monetary phase stance. Nevertheless, the investment rate of over-leveraged firms has slowed because of higher interest payments and increased retained earnings. This leverage impact intensified during a contractionary monetary policy phase. In addition, Tobin's Q emerges as relevant only for investments related to firms in the sectors of manufacturing and nonfinancial services.

The role of public–private coordination: the case of sweet cherries in Argentina 2000–2020

PurposeThe purpose of this paper is to understand the sustained growth of sweet cherry exports in recent years in Argentina and to what extent the coordination mechanisms between public and private institutions can explain the growth.Design/methodology/approachThe research method used in the paper is descriptive and based on in-depth interviews with producers, agencies and institutions from the cherry industry. Qualitative results are complemented with analysis of key market data.FindingsThe sweet cherry industry in Argentina underwent a shake up with entry of new vertically integrated players and the technological upgrade of traditional producers that resulted in an export boom. The transformation of the industry was induced by the global market conditions and, more importantly, the promotion and complementarities achieved through a strong public–private partnership. Despite the constant increase in global demand for counter-season cherries, exports from Argentina are currently struggling to sustain growth. Among various bottlenecks, the authors find the instability of government policies (e.g. labor law, tax system, economic and trade policies) as the main cause for the slowdown in investment and expansion of the planted area.Research limitations/implicationsThe paper highlights the importance of understanding the growth process of an industry and the different ways in which public and private sectors can enhance export performance. The relationship between the success of private–public partnerships and the particular configuration and characteristics of the industry deserve further study. The usual limitations from single-case studies apply.Originality/valueThe study has two contributions. First, the study uncovers the economics underlying the development and configuration of the sweet cherry industry in Argentina. Second, the study documents a successful case of private–public partnership to boost exports and reach new markets.

Corporate investment and the exchange rate: The financial channel

AbstractCurrency depreciation dampens corporate investment through a financial channel. Using firm‐level data for 16 major economies, we find that depreciation reduces investment by interacting with firm leverage. The finding is consistent with predictions from a stylized model of credit risk in which the exchange rate affects credit supply and investment when firms borrow in foreign currency, or in local currency from foreign lenders. Empirically, the channel is significantly more pronounced in emerging market economies (EMEs), reflecting greater dependence on foreign funding and less developed financial systems. Our findings suggest that the depreciation of EME currencies since 2011 probably contributed in a significant way to the investment slowdown in these economies.

THE INDIAN MANUFACTURING SECTOR: FINANCE, INVESTMENT AND PERFORMANCE OF FIRMS

: The purpose of this paper is to explain the manufacturing stagnation in India, particularly, examining the hypothesis that financial stress caused the stagnation. Using a sample of 804 large, mid, and small cap manufacturing firms in India from Prowess database, the paper examines the performance of manufacturing sector during 2005-19 using simple financial indicators and dynamic panel data regression analysis. We estimate the structural equations of investments, leverage and profitability using a two-step Generalized Methods of Moments estimation. We do not find substantial support for the hypothesis that financial stress explains the investment slowdown in these firms. Our findings suggest that manufacturing firms, particularly the larger firms, are practicing debt conservatism. We also find that the declining growth in sales is a major determinant in explaining the slowdown in fixed investments and profits of these firms. In addition, the size of the firms measured in terms of sales also matters for small cap firms. We therefore suggest that measures to increase demand can help in reviving the sales growth of firms and thereby private investments and profits.

Private investment slowdown in India: an empirical assessment

Private investment slowdown in India: an empirical assessment

Private investment slowdown in India: an empirical assessment

Private investment slowdown in India: an empirical assessment

Corporate financialization\u2019s conservation and transformation: from Mark I to Mark II

This paper argues that, as far as the investment behavior of non-financial corporations is concerned, the apparent continuity over the last four decades suggested by the corporate financialization label is misleading. Indeed, while the disconnection between profitability and investment is a robust stylized fact for most of the period, with cumulative detrimental consequences for labor, we contend that the underlying mechanisms changed meaningfully at the turn of the millennium. This contribution identifies—empirically and theoretically—two distinct successive corporate financialization regimes (Mark I and Mark II) and explains their evolutionary articulation. Financialization Mark I is characterized by the empowerment of financial actors: in a context of high interest rates and full-blown liberalization, diminishing retained earnings by non-financial corporations resulted in a dramatic slowdown of investment. Contrastingly, Financialization Mark II is characterized by a strongly established financial hegemony with new forms of intellectual and financial monopoly. In this configuration, interest rates are low and global value chains are deeply seated. This fuels rampant deflationary pressure, which changes the overall dynamic of the profit-investment nexus. Then, in Financialization Mark II, contrary to what occurred during Financialization Mark I, distributed profits are the consequence of slow investment.

Working in the end times

AbstractCapitalism has always generated predictions of its demise. One common form such predictions take is the fear of an absence of sufficient work to go around. In an important new text, Daniel Susskind argues that revolutions in computational power are already bringing about such a condition, which will soon lead to a secular stagnation of employment. I argue that even if correct in its conclusions, Susskind’s argument doesn’t bear scrutiny – since it pays little attention to the critical dynamics shaping today’s global economy (globalisation, financialisation, and a slowdown in investment and productivity). Examining these factors carefully gives us a very different take on turbulent techno‐economic change.

Investment slowdown in India – an assessment

ABSTRACT The contraction of investment activity in India in 2019-20 has generated an anxious search for possible drag factors, both cyclical and structural. This paper finds statistically significant sensitivity of investment activity in India to changes in interest rates. It highlights that the extent to which lower interest rates could be ensured through monetary policy to stimulate investment activity is bounded by constraints. Lower interest rates to spur investment activity that involves tolerance of higher inflation relative to the inflation target becomes particularly ineffective and counterproductive.

Performance Evaluation of Debt Mutual Funds of HDFC AMC

In terms of both the investment and the savings rate, the Indian economy has been facing the impacts of a slowdown. But it is also true that the reversing process of the investment slowdown, which is still in the process or underway is more critical and difficult at this juncture. (Minsky, 2017-18) The investors in India are risk-averse and therefore they prefer investing in the securities that are safe and give them decent returns. Among the plethora of options for investments, Mutual Fund Industry has the safest image in terms of investments. Mutual Fund Industry is becoming popular day-by-day. This brings in need of a performance analysis of mutual funds for both the investors and the fund houses. In this research paper, an attempt has been made to study the performance of the Top 5 Debt Schemes of HDFC AMC namely HDFC Corporate Bond Fund, HDFC Short Term Debt Fund, HDFC Credit Risk Debt Fund, HDFC Gilt Fund, and HDFC Dynamic Debt Fund (based on their AUMs) based on risk-return relationship models and various measures. The study and the analysis have been made on the basis of their Standard Deviation measure, Beta risk measure, Sharpe ratio measure, Treynor ratio measure, and Jensen Alpha measure. Conventionally, risk-return ratios like Standard Deviation, Beta, Sharpe ratio, Treynor ratio, and Jensen Alpha are calculated only for equity mutual funds and not for debt mutual funds but the new generation empirical studies have proved that these ratios are equivalently beneficial for debt mutual funds also because they give the accurate dimension of the risk the investor takes for particular debt scheme. This existing research gap has motivated me to take this forward and make an attempt to give a better picture of the performance of the debt mutual funds of HDFC AMC. If these calculations are implemented by the industry experts to the debt mutual funds, this would bring great benefits to the investors because they will clearly know how much return they will get viz-a-viz the risk they are taking. An initiative has been taken by ICICI Prudential Mutual Fund house to incorporate a few of the stated ratios in their debt mutual funds’ factsheets and an attempt has been made in this study to calculate these ratios for HDFC AMC. The study entails the literature review, research methodology, results and discussion, summary of findings, and conclusion of the study. Objectives: 1. To evaluate the performance of the selected mutual fund debt schemes of HDFC AMC on the basis of their risk and returns parameters and compare them with their respective benchmark indices. 2. To appraise the performance of selected mutual fund debt schemes of HDFC AMC with risk-adjusted measures such as Sharpe Ratio, Treynor’s Ratio, and Jensen’s Alpha Ratio.

Examining the differential impact of monetary policy in India: a policy simulation approach

PurposeThough an accumulating body of study has analysed monetary policy transmission in India, there are few studies examining the differential impact of monetary policy action. Against this backdrop, this study aims to analyse the differential impact of monetary policy on aggregate demand, aggregate supply and their components along with the general price level in India.Design/methodology/approachThe study develops a structural macroeconometric model, which is primarily aggregate and eclectic in nature. The generalized method of movements is used for estimation of behavioural equations, while a Gauss–Seidel algorithm is used for model simulation purposes.FindingsThe paper presents the results of two policy simulations from the estimated model that highlight the differential impact of monetary policy. The first one, hike in the policy rate by 5% and second is a reduction in bank credit to the commercial sector by 10%. The results from the first policy simulation experiment reveal that interest hike has a significant negative impact on aggregate demand, aggregate supply and general price level. However, the maximum impact is borne by investment demand and imports followed by private consumption. While as among the components of aggregate supply maximum impact is born by infrastructure output followed by the manufacturing and services sector with the agriculture sector found to be insensitive in nature. The results from the second policy simulation experiment revealed that pure monetary shocks have a significant negative impact on aggregate demand, aggregate supply and general price level. However, the maximum impact is born by private consumption and imports followed by investment demand. While as among components of aggregate supply maximum impact is borne by infrastructure followed by the manufacturing and services sector with the agriculture sector found to be insensitive in nature. From both policy simulation experiments, the study highlighted the relative importance of the income absorption approach as opposed to the expenditure switching effect.Practical implicationsThe results obtained in this study provides a strong framework for design the monetary policy framework. The results are in a view of the differential impact of monetary policy action among the components of both aggregate demand and aggregate supply. This reflection of differential impact has immense significance for the macroeconomic stabilization as the central bank will have to weigh the varying repercussion of its actions on different sectors. For instance, the decline in output after monetary tightening might be conceived as mild from an overall perspective, but it can be appreciable for some sectors. This differential influence will have an implication for policy design to care for distributional aspects, which otherwise could be neglected/disregarded. Similarly, the output decline may be as a result of either consumption postponement or a temporary slowdown in investment. However, the one emanating due to investment decline will have lasting growth implications compared to a decline in consumer demand. In addition, the relative strength of expenditure changing or expenditure switching policies of trade balance stabilization may have varying consequences in the aftermath of monetary policy shock. Accordingly information on the relative sensitiveness/insensitiveness of different sectors/ components of aggregate demand towards monetary policy actions furnish valuable insights to monetary authorities in framing appropriate policy.Originality/valueThe work carried out in the present paper is motivated by the fact that although a number of studies have examined the monetary transmission mechanism in India, a very few studies examining the differential impact of monetary policy action. However, to the best of the knowledge, there is no such studies, which have examined the differential impact of monetary policy in the structural macro-econometric framework. The paper will enrich the existing literature by providing a detailed account of the differential impact of monetary policy among the components of both aggregate demand and aggregate supply in response to an interest rate hike, as well as a decrease in the money supply.

Government Subsidies, Credit Allocation and the Investment Cycle

We present a model of banking with adverse selection and public guarantees extended to state-owned lenders. We find that while these guarantees induce the banking sector to lend to a larger proportion of firms with positive value, this occurs as a result of a reduction in prudential incentives to screen borrowers by state-owned banks which results in credit supply at a less than actuarially fair price. When the subsidy is tied to evergreening of non-performing loans as opposed to recapitalization post prompt loss recognition, it generates excessive credit allocation to low-productivity, legacy projects at the expense of higher-productivity firms. In the aggregate, this decreases investment, productivity growth and output while increasing financial stability risk. We apply our theoretical predictions to explain the coincidence of rising bank vulnerability and the investment slowdown in India over the last decade.

Corporate Investment and the Exchange Rate: The Financial Channel

Using firm-level data for 18 major global economies, we find that the exchange rate affects corporate investment through a financial channel: exchange rate depreciation dampens corporate investment through firm leverage and FX debt. These findings are consistent with the predictions of a stylised model of credit risk in which exchange rates can affect investment through FX debt or borrowing in local currency from foreign lenders. Empirically, the channel is more pronounced in emerging market economies (EMEs), reflecting their greater dependence on foreign funding and their less developed financial systems. Moreover, we find that exchange rate depreciation induces highly leveraged firms to increase their cash holdings, supporting from a different angle the notion of a financial channel of the exchange rate. Overall, these findings suggest that the large depreciation of EME currencies since 2011 was probably a significant amplifying factor in the recent investment slowdown in these economies.

Dimensions and Determinants of Financialisation: Comparing OECD Countries since 1997

ABSTRACT The financialisation literature has grown over the past decades. Despite a generally accepted definition, financialisation has been used to describe different phenomena. We distinguish between financialisation of non-financial companies, households and the financial sector and use activity and vulnerability measures. We identify seven financialisation hypotheses in the literature and empirically investigate them in a cross-country analysis for 17 OECD countries and two time periods, 1997–2007 as well as 2008–17. We find different financialisation measures are only weakly correlated, suggesting the existence of distinct financialisation processes. There is strong evidence that financialisation is linked to asset price inflation and correlated with a debt-driven demand regime. Financial deregulation encourages financialisation. There is limited evidence that market-based financial systems are more financialised. Foreign financial inflows do not seem a main driver. We do not find indication that an investment slowdown precedes financialisation. Our findings suggest financialisation should be understood as a variegated process, playing out differently across economic sectors and countries.

Explaining Recent Investment Weakness: Causes and Implications

ABSTRACT This article investigates the drivers of investment growth in emerging market and developing economies with a focus on the most recent slowdown over the 2010–2015 period. Using panel regression techniques, we find that the recent investment slowdown in emerging market and developing economies is associated with a range of obstacles: weak economic activity, negative terms-of-trade shocks, declining foreign direct investment inflows, elevated private debt burdens, and heightened political risk. This stands in contrast with advanced economies, where weak economic activity is the most important factor. We briefly discuss policy implications of our findings.

Dependent capitalism and the middle-income trap in Europe na East Central Europe

Abstract The post-2008 slowdown in economic convergence by countries of east central Europe towards the level of western Europe is interpreted with the help of a concept of dependent capitalism. Convergence appeared to be rapid up to that year, but then stalled, albeit with differing results depending on the measure used. Dependent capitalism meant that the driver for economic growth comes from inward investment by multinational companies (MNCs). Domestically owned businesses failed when faced with international competition, and their agenda hampers policies supporting an active role from the state. Inward investment is attracted by low wages and has contributed to substantial growth, but the slowdown in investment was accompanied by much slower economic growth and dangers that past investment could turn into a burden on the external balance. The strategies pursued by incoming MNCs have brought areas of upgrading, but frequently leave technological levels somewhat behind those of western Europe. Even where they use the same technologies as in their home countries, wages still remain significantly lower. Achieving full convergence would require a different growth model following a substantial change in economic policies: this does not appear likely in the near future.

Foreword

Shanta Devarajan, who is the Senior Director at the Development Economics – World Bank, said recently, in a forecasting about global economic growth at the beginning of 2018, that currently there is a set of optimistic projections for economic growth around the world. Ten years after the global financial crisis, every economic region – from the U.S. to Europe to Asia, Africa, and Latin America – is seeing an uptick in growth. One reason for the optimism is that economic growth was surprisingly better than anticipated in 2017. Almost every growth forecast at the beginning of the year was revised upward by the end of the year. Global growth, projected by the World Bank to be 2.7 % in January 2017, was estimated at 3 percent in December, with expectation to be at 3.1 percent in 2018. Furthermore, stock markets are booming. And the factors that caused growth to be subdued in the past – a slowdown in investment and trade and low commodity prices – are rebounding. Consequently, developing country growth is forecasted at a robust 4.5 percent in 2018, accelerating to 4.7 percent in the subsequent two years. This growth is not just driven by China, although the country’s economy is projected to grow at a robust 6.4 percent in 2018. Low-income countries’ growth will rise to 5.4 percent in 2018, accelerating to 5.6 percent in 2019-2020, as metal and mineral prices strengthen.

Investment Slowdown in Denmark: Diagnosis and Policy Options

Total investment in Denmark has experienced a sharp slowdown following the global financial crisis. This slowdown has coincided with a decline in labor productivity and expansion of the current account surplus. This paper presents stylized facts summarizing the investment slowdown followed by an empirical analysis identifying its drivers. The results suggest that the decline in output has contributed to investment slowdown, consistent with predictions of the accelerator model. However, other factors, including high leverage and structural rigidities in product markets, also played a role.