Closing the Investment Gap
Business investment depends on expected future demand and output growth, not on current returns or retained earnings. This “accelerator” theory of investment explains most – but not all – of the weakness of business investment in the developed economies since the 2008 financial crisis.
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BERKELEY – The weakness of private investment in the United States and other advanced economies is a worrisome – and perplexing – feature of the recovery from the 2008 global financial crisis. Indeed, according to the International Monetary Fund, through 2014, private investment declined by an average of 25% compared to pre-crisis trends.