Investment and the long swings of unemployment
We estimate the relationship between investment and unemployment over the time period 1960-2015 in 20 OECD countries. While neoclassical growth theory typically assumes full employment – with no effect of investment on unemployment – we find that over our sample period covering more than five decade...
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Format: | text |
Language: | English |
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Institutional Knowledge at Singapore Management University
2018
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Online Access: | https://ink.library.smu.edu.sg/soe_research/2216 https://ink.library.smu.edu.sg/context/soe_research/article/3215/viewcontent/BWPEF1810.pdf |
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Institution: | Singapore Management University |
Language: | English |
Summary: | We estimate the relationship between investment and unemployment over the time period 1960-2015 in 20 OECD countries. While neoclassical growth theory typically assumes full employment – with no effect of investment on unemployment – we find that over our sample period covering more than five decades, a statistically significant negative relationship does exist: when investment fell, unemployment increased. When the time period is broken down into two sub-periods to take account of the Great Recession, we find that the estimated coefficient of investment is slightly smaller when the period 2001-2015 is added to the 1960-2000 period. We also find a positive effect of the current account surplus on unemployment that very likely works through investment. A non-monetary model shows how an increase in policy uncertainty that sharply contracts investment and raises unemployment can lead to an increase in current account surplus. |
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