Macroeconomic Policy, Product Market Competition, and Growth: The Intangible Investment Channel

By JaeBin Ahn, Romain A Duval, Can Sever

February 7, 2020

Preview Citation

Format: Chicago

JaeBin Ahn, Romain A Duval, and Can Sever. Macroeconomic Policy, Product Market Competition, and Growth: The Intangible Investment Channel, (USA: International Monetary Fund, 2020) accessed September 18, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

While there is growing evidence of persistent or even permanent output losses from financial crises, the causes remain unclear. One candidate is intangible capital – a rising driver of economic growth that, being non-pledgeable as collateral, is vulnerable to financial frictions. By sheltering intangible investment from financial shocks, counter-cyclical macroeconomic policy could strengthen longer-term growth, particularly so where strong product market competition prevents firms from self-financing their investments through rents. Using a rich cross-country firm-level dataset and exploiting heterogeneity in firm-level exposure to the sharp and unforeseen tightening of credit conditions around September 2008, we find strong support for these theoretical predictions. The quantitative implications are large, highlighting a powerful stabilizing role for macroeconomic policy through the intangible investment channel, and its complementarity with pro-competition product market deregulation.

Subject: Commodity markets, Competition, Financial crises, Financial markets, Financial statements, Global financial crisis of 2008-2009, Public financial management (PFM)

Keywords: Balance sheet vulnerability, Commodity markets, Competition, Coverage ratio, Credit constraint, Financial frictions, Financial statements, Global, Global financial crisis of 2008-2009, Growth, Hysteresis, Intangible asset investment, Intangible investment, Intangible investment, Leverage ratio, Monetary policy, Product Market, Product market competition, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/025
Stock No:

WPIEA2020025
ISBN:

9781513528571
ISSN:

1018-5941

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