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Mr. Raphael A Espinoza, Juliana Gamboa-Arbelaez, and Mouhamadou Sy

Investment on Private Firms’ Net Investment Rates Figure 2. Private Investment, Public Investment, and Corporate Debt Figure 3. Net investment Rates and Leverage Figure 4. Non-linear Effect of Leverage on Private Firms’ Net Investment Rates Figure 5. Financially Constrained Firms by Sector Figure 6. Net Investment Rates and Financial Constraints Figure 7. Non-linear Effect of Financial Constraints on Corporate’ Net Investment Rates Figure 8. Effect of Public Investment on Private Firms’ Net Investment Figure 9. Linear Effect of Public Investment Shock on

Mr. Raphael A Espinoza, Juliana Gamboa-Arbelaez, and Mouhamadou Sy

) where z is an indicator of the conditions of firms’ balance sheet (e.g. leverage) normalized to have zero mean and unit variance. The dependent variable is the net investment rate of firm i , in country c, in sector s at horizon h . The net investment rate is computed as the annual change in real fixed tangible assets scaled by lagged fixed tangible assets 3 . Therefore, k is the logarithm of real capital stock. α t and μ t are firm and time fixed effects, respectively. GIS is the public (general government) investment shocks. All explanatory variables (X

Mr. Raphael A Espinoza, Juliana Gamboa-Arbelaez, and Mouhamadou Sy
This paper explores whether public investment crowds out or crowds in private investment. To this aim, we build a database of about half a million firms from 49 countries. We find that the effect of public investment on corporate investment depends both on leverage and financial constraints. Public investment boosts private investment for firms with low leverage. However, for firms with high leverage, private investment does not react to an increase in public investment, in line with theory (Myers 1977). We also find that the effect of public investment on corporate investment is much weaker for firms that are financially constrained.
International Monetary Fund. Fiscal Affairs Dept.

Abstract

Chapter 1 of the report draws some early lessons from governments’ fiscal responses to the pandemic and provides a roadmap for the recovery. Governments’ measures to cushion the blow from the pandemic total a staggering $12 trillion globally. These lifelines and the worldwide recession have pushed global public debt to an all-time high. But governments should not withdraw lifelines too rapidly. Government support should shift gradually from protecting old jobs to getting people back to work and helping viable but still-vulnerable firms safely reopen. The fiscal measures for the recovery are an opportunity to make the economy more inclusive and greener. Chapter 2 of this report argues that governments need to scale up public investment to ensure successful reopening, boost growth, and prepare economies for the future. Low interest rates make borrowing to invest desirable. Countries that cannot access finance will, however, need to do more with less. The chapter explains how investment can be scaled up while preserving quality. Increasing public investment by 1 percent of GDP in advanced and emerging economies could create 7 million jobs directly, and more than 20 million jobs indirectly. Investments in healthcare, housing, digitalization, and the environment would lay the foundations for a more resilient and inclusive economy.

Sophia Chen and Miss Yinqiu Lu

classifications). Table 1 Summary Statistics of the Regression Sample Variables Mean St. Dev. Min Median Max N Net investment rate 0.012 0.312 −2.319 −0.018 0.969 307 Total debt / Assets 0.495 0.252 0.058 0.492 1.875 307 Net debt / Assets 0.427 0.281 −0.686 0.444 1.855 304 Cash / Assets 0.067 0.085 0.000 0.037 0.521 302 Earnings / Debt 0.228 0.451 −3.363 0.121 2.395 307 Earnings / Net debt 0.204 0.715 −3.478 0.124 6.918 301

International Monetary Fund

I. I nvestment T rends and B usiness C apital S tock in OECD C ountries : L ong -T erm D evelopments and F uture P rospects 1 A. Introduction 7. By almost any measure—capital stock or net investment rate—the pace of capital accumulation has been declining steadily in Germany over the past several decades ( Figure I-1 ) . This phenomenon has been a source of concern to policymakers, since it directly affects the long-run ability of the German economy to produce goods and service. The Deutsche Bundesbank (1998 , page 36), for example, wrote

Sophia Chen and Miss Yinqiu Lu
Fixed investment was the most important contributing factor to the boom-bust cycle in Cyprus over the last decade. Investment boomed during a credit boom in mid-2000s, during which the corporate sector borrowed heavily. Investment collapsed after 2008 when the credit boom ended. Investment and corporate balance sheets further deteriorated during the Cypriot banking crisis over 2012–2014. Using firm-level investment and balance sheet data, we find that corporate indebtedness is negatively associated with investment both before and after the banking crisis, although the effect is weaker after the Cypriot banking crisis, possibly due to the reduced role of credit in driving post-crisis investment and growth. Our results suggest the need to repair corporate balance sheets to support sustainable invesetment.
International Monetary Fund

investment rate. Instead, the decline primarily reflected lower outlays on communication equipment, machinery, and trucks. 7. The net investment rate (i.e., excluding depreciation) exhibited broadly similar trends from the 1980s to 2000. Net private nonresidential investment declined sharply from the early 1980s to the early 1990s, reaching a low of around 1½ percent of net domestic product (NDP), before rebounding in the early 1990s and reaching around 5 percent of NDP in 2000 ( Figure 2 ). Equipment investment led the increase—during 1995–2000, net investment in these