Ilan Strauss and Jangho Yang

Using a Bayesian ‘mixed effects’ model we estimate competing explanations for the investment slowdown on a large panel of firms with time-varying and country-varying coefficients. This allows us to explore both microeconomic (firm-level) and macroeconomic (country- and time-level) explanations. Evidence for key supply side, firm-level, impediments to investment rates are absent: advanced economy firms are financially unconstrained and remain responsive to investment opportunities. Instead, differences in firms’ investment rates across time and between countries can largely be explained by our secular stagnation predictor, proxied by the corporate sector’s ‘net external financing’ demand. This shows that firms, and the corporate sector as a whole across advanced economies, are increasingly net external ‘releasers’ of funds to shareholders, creditors, and bondholders, reflecting cross-cutting exogenous factors creating a chronic excess of cash flow over weakening investment opportunities.