Schnattinger, P., "What is productive investment? Insights from firm-level data for the United Kingdom" | POSTPONED

POSTPONED

Title: "What is productive investment? Insights from firm-level data for the United Kingdom"

Speaker: Dr. Philip Schnattinger, Bank of England

Host: Assistant Professor Alexopoulos Angelos, Department of Economics, Athens University of Economics and Business

Time: 13.00 -15.00

Room: A36

Attachments:  PDF of Relevant Paper

Abstact: This paper studies the effects of different types of investment and levels of debt on productivity in the UK. We examine the issue empirically using data on listed firms in the UK. Our main finding is that intangible investments are a good proxy for productivity-enhancing investment, as they have a positive effect on Total Factor Productivity (TFP). On the other hand, we find no consistent evidence of positive TFP effects for tangible investment. In those firms that have high debt and high levels of intangibles, the positive TFP effects are even more pronounced. Hence, debt can be "good" if it is associated with productivity-enhancing investments. We then set out a stylised model of a dynamic firm profit maximisation problem, and augment this model with an external financing option in a novel way. Uniquely, we use neural network methods to solve the value function of the model and propose a moments-matching approach that allows us to estimate some of the parameters of the model. We use the model to illustrate how productivity enhancing investment differs from other investments in its effects on TFP, and how these positive effects can be stronger for firms that have higher indebtedness. Applying our model to aggregate TFP dynamics in the UK suggests that around 0.07 pp, or a fifth of the TFP slowdown in the UK since the Global Financial Crisis can be attributed to weaker intangibles investments in large UK firms.