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Industrial Investment in the European Community

Published online by Cambridge University Press:  17 August 2016

Daniel Weiserbs
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Abstract

Since 1973 European Economies have faced a period of slow growth aggravated by a new recession in 1980 which has dramatically increased unemployment. It has also particularly affected investment whose volume declined in absolute terms between 1979 and 1983.

Whilst in the period of rapid growth, exports and investment were the driving forces of expansion, however in the mid 70’s growth was sustained rather by public and private consumption. But since then public deficits have constrained governments to adopt austerity policies reducing their expenditures and slowing down as much as possible transfers to households.

Simultaneously, the weakening of firms’ financial situation has led governments to endeavour to render the distribution of value added more favorable to profits, which has brought pressure on real wages. This, together with limitation on the volume of transfer payments, has eroded consumer’s purchasing power.

These policies have been quite effective in terms of inflation rates and external deficits. However, the medium term prospects for unemployment remain around 10%, if not more, of the active population.

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 50 , Issue 1-2 , 1984 , pp. 15 - 28
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1984 

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Footnotes

*

Université Catholique de Louvain.

This study is part of a research project supported by the European Investment Bank. 1 am grateful to A. Kervyn de Lettenhove for fruitful discussions, to C. Boyd for useful comments, to B. Van Haeperen for help with the data and to C. Stage for cheerful secretariat assistance.

References

(1) t-statistics are in parentheses.

(2) We are grateful to our collegue A. Kervyn de Lettenhove who has estimated these series on the assumption that the value added generated by a self employed person was 75% of that of a wage-earner.

(3) Zy and Zt-1 were only included for Belgium, Italy and U.K.

(4) To avoid loosing an extra observation due to Q t − 3, we assumed that the rate of growth of investment in 1960 was the same as that of total productive investment.

(5) For example, the values of the likelihood-ratio test between the unconstrained model (17) and model (16) are: D: 11.9; F: .8; NL: 3.9; 1: 3.9; B: 1.1 and U.K.: 2.5. These values are to be compared with for countries B, I, UK and with for the others which are at 5% (1 %) confidence: = 9.48 (13.28) and = 11.07 (15.09).

(6) In Table II t-statistics are in parentheses, R is the square of the correlation between observed and fitted values, t is the log of the likelihood function. All the D.W. statistics were close to 2, except for France (1.4) and are therefore not reported.

(7) The product ϕ α 1 is respectively D: 1.79; F. 1.45; NL: 1.58; 1: 1.96.