By Aqib Aslam, Daniel Leigh, and Seok Gil Park
(Versions in عربي, 中文, Français, 日本語, Русский, and Español)
The debate continues on why businesses aren’t investing more in machinery, equipment and plants. In advanced economies, business investment—the largest component of private investment—has contracted much more since the global financial crisis than after previous recession. And there are worrying signs that this has eroded long-term economic growth.
Getting the diagnosis right is critical for devising policies to encourage firms to invest more. If low investment is merely a symptom of a weak economic environment, with firms responding to weak sales, then calls for expanding overall economic activity could be justified. If, on the other hand, special impediments are mainly to blame, such as policy uncertainty or financial sector weaknesses, as some suggest, then these must be removed before investment can rise.