毛泽东为何至死不见唯一孙子？晚年信息遭人封锁

Weak investment has weighed on potential output growth since the global financial crisis (GFC), despite historically low financing costs and strong corporate profitability. Subdued aggregate demand and elevated uncertainty have dampened real business investment, but explain only around half of the investment shortfall since the GFC. In parallel, structural shifts, particularly the growing importance of digital assets and evolving corporate behaviour, have become more prominent. As economies have transitioned toward more digital and knowledge?intensive production – accelerated by the artificial intelligence (AI) revolution – businesses have increasingly allocated investment toward software, data, computing hardware, and research and development. Firms have also channelled a lower share of their retained earnings and borrowed funds into productive investment, while requiring persistently high rates of return, or ‘hurdle rates’. These trends may be associated with underlying forces that restrain business investment and dynamism, including declining competitive pressures and the challenges in financing intangible investments. At the same time, residential investment has struggled to keep pace with strong housing demand, contributing to a steady erosion in affordability over the past few decades. Public investment – although showing some recent signs of recovery – has also been weak in many countries for an extended period.

Against this backdrop, the chapter outlines policy approaches to support a revival in investment, including by reducing policy uncertainty, strengthening macroeconomic stability to support growth and advancing structural reforms to reinvigorate business dynamism. Policies that foster competition and improve access to finance are needed to unlock new investment opportunities and boost innovation in many countries. Reforms to ease land-use and planning restrictions and rental market regulations would help expand residential investment and improve affordability. Finally, high-quality public investment – particularly in energy security and green and digital infrastructure, research and development, health, and education – is needed in many economies and can help boost productivity and long?term economic growth.

Underlying growth prospects have weakened considerably over the past two decades, both in advanced and emerging?market economies. Weak growth in the capital stock has been an important factor behind the slowdown in potential output per capita growth in many countries, alongside a decline in multi-factor productivity (MFP) growth. Potential output per capita growth fell by 0.8 percentage points in the median advanced country and 0.9 percentage points in the median emerging-market economy between the 2002?2008 period and 2024. Weaker growth in capital per worker accounted for 0.5 percentage points of the decline in potential GDP per capita growth in the median advanced country, and 0.3 percentage points in the median emerging-market country. The slowdown in capital accumulation has weighed on potential growth across nearly all countries (Figure?2.1, Panel A), including those with relatively strong overall growth performance, such as India and China.

The aggregate slowdown in capital accumulation masks notable cross-country differences (Figure?2.1, Panel B). In the advanced economies, capital stock growth has been particularly weak in Japan, Italy, Greece and Portugal during the past 15 years. The United States has observed steadier growth, albeit still below levels observed in the period before the GFC. Capital stocks in emerging-market economies have grown slightly faster on average than in advanced economies, reflecting greater investment needs. Nevertheless, some major emerging-market economies, such as Brazil, Argentina and South?Africa, have seen weak capital stock growth, while others, such as Chile, have experienced high growth rates, but still a marked slowdown in capital stock growth over the past two decades.

The slowdown in capital accumulation largely reflects the lasting impact of two major shocks – the GFC and the COVID?19 pandemic – which led to notable declines in real investment from which most economies have recovered only partially. Total real investment, which measures the volume of gross fixed capital formation across the economy, contracted sharply during the GFC as economic growth weakened and financing conditions tightened. The subsequent recovery was relatively modest. Investment declined again during the pandemic, rebounding only partially thereafter, with other events such as Russia’s war of aggression in Ukraine and rising energy prices also weighing on capital formation. As a result, aggregate real investment volumes across advanced countries remained approximately 22% below their pre?GFC trend and 7% below the pre-COVID trend at end-2024 (Figure 2.2, Panel A). An investment shortfall is also evident in emerging markets, though it developed more gradually, as investment was less affected by the GFC than in advanced economies. Investment in emerging-market economies on average is estimated to be approximately 33% below the pre-GFC trend, although it is slightly above the pre-COVID trend due to recent robust growth in India and Indonesia (Figure 2.2, Panel B). This investment slowdown has been widespread across countries. Most have continued to see weak capital formation in recent years, with a few exceptions, such as the United States, India and Indonesia, where investment growth has been relatively strong.

While the ratio of gross investment to GDP has risen in recent years in some countries, net investment - the addition to the capital stock after accounting for depreciation - remains weak across OECD countries. Since the pre-GFC period, average net investment rates across the OECD have declined by over 0.9?percentage points of GDP, from 2.5 to 1.6 per cent of GDP for the median country, with the fall in net investment strongest in the euro area. The overall decline in net investment has been primarily driven by the drop in business net investment - the largest share of total investment – though reductions in residential and public net investment have also contributed (Figure 2.3). The declines primarily reflect weakness in underlying investment volumes. The fall in prices of investment goods relative to overall prices played a significant role in the lower net investment?to?GDP ratios of the 1990s and early 2000s, but relative prices have since broadly stabilised in the post-GFC period.

Business investment, which accounts for over 60% of total investment in the average OECD country, has remained comparatively weak in most economies for which data are available. Notable exceptions are the United States and France, where business investment has grown more robustly. The weakness has been widespread, affecting most sectors (Figure?2.4, Panel A) and both large and small firms (Hanappi, Millot and Turban, 2023). Changes in the sectoral composition – such as an increasing share of less investment?intensive sectors such as services and a declining share of more capital-intensive manufacturing – seem to have played only a limited role. Instead, the decline in investment has been largely driven by within-sector dynamics (Figure 2.4, Panel B).

One key factor contributing to the weakness in business investment relative to earlier trends is more subdued growth in aggregate demand. In many countries, real output fell sharply following both the GFC and the pandemic, and recovered only partially relative to its pre-crisis trend. Corporate investment is closely linked to output growth, as stronger demand incentivises firms to expand capacity.

Empirical analysis based on an accelerator model suggests that weak aggregate demand is an important factor explaining business investment performance. Yet, it accounts for only around one?third of the overall shortfall in real business investment relative to the pre?GFC trend (Figure?2.5, Panel?A) on average, for the 17 countries with available data. In contrast, the accelerator model suggests that business investment was broadly in line with output growth in the period leading up to the financial crisis. The remaining shortfall may be viewed as an investment ‘gap’, defined as the shortfall in investment not attributable to output developments. This investment ‘gap’ is around 17% of the predicted investment level on average and is even larger in some countries – exceeding 30% in Australia, Korea, and the Netherlands (Figure 2.5, Panel?B).

Investment gaps have widened over time, pointing to the growing importance of non-demand factors in explaining weak investment. In the immediate wake of the GFC (2008-2011), the gap was small, suggesting that demand effects accounted for most of the investment weakness, although credit supply and debt overhangs may also have contributed. Between 2012 and 2019, the gap widened gradually, and from 2020 onward, the COVID-19 shock contributed to a further increase. On average, developments since 2020 account for roughly one-quarter of the unexplained slowdown in investment. The impact of the pandemic on the investment gap has been particularly sizeable in some countries, such as Belgium, Denmark and?Sweden (Figure 2.5, Panel B).

Business investment gaps have opened up despite a marked decline in the user cost of capital (UCC) across most economies. The UCC, which captures the cost of financing and maintaining capital –factoring in borrowing costs, relative prices, taxes, and depreciation – has trended downward steadily over the past few decades until the recent moves to tighten monetary policy (Figure 2.6, Panel A). Borrowing costs dropped to historically low levels following the monetary policy easing in response to the GFC, and while they have risen more recently, they remain well below long-term averages (Figure 2.6, Panel B). Effective corporate tax rates have also declined, with several OECD countries having reduced the main statutory rate (Figure 2.6, Panel C), and changes to tax provisions have further lowered the effective cost of capital in some countries. Simultaneously, the price of investment goods relative to overall output prices fell throughout the 1990s and early 2000s, largely due to sustained improvements in the quality and efficiency of ICT-related capital (Figure 2.6, Panel C).

At the same time, corporate valuations have remained favourable to higher investment. When the ratio of a firm's market valuation to the replacement cost of its assets (Tobin’s Q) is above one, markets expect firms can earn returns on new investment that exceed investment costs. Firm-level data from listed companies in a subset of OECD countries indicate that Tobin’s Q has remained above this threshold since the GFC. In the United?States and some Scandinavian countries, valuations have risen strongly in recent years, whereas valuations have been flat or increased only gradually in most European and other advanced economies (Figure 2.6, Panel D).1

Firms’ profitability and cash resources also do not appear to have acted as constraints. Subdued corporate investment in advanced economies since the GFC has coincided with the corporate sector shifting from being a net borrower to net lender on aggregate (Figure 2.7, Panel A). Gross corporate savings as a share of GDP have increased in more than half of the OECD countries with available data, driven by stronger profits, proportionally lower tax payments, and lower interest expenditures, although this has been partially offset by higher dividends in some countries including the United States, Canada and the Netherlands (Figure 2.7, Panel B). Overall, the ratio of net investment to net sales has also declined, implying that higher sales have not been proportionally matched with higher investment.

Taken together, this suggests that capital costs, valuation signals and firms’ profitability cannot explain the weakness in business investment. Moreover, proxy measures of the UCC, Tobin’s Q and firms’ profitability are not statistically significant when added to the accelerator model (see Annex?2.A), pointing instead to the growing importance of other determinants in explaining investment, particularly since 2012. These are likely to include heightened economic uncertainty and structural factors, such as changing investment patterns towards digital assets and evolving corporate behaviour.

Elevated uncertainty – both macroeconomic and policy related – is likely to have weighed on investment incentives and encouraged precautionary cash accumulation. Firms may hesitate to commit to long-term capital spending projects when the outlook for global demand, trade policy, or regulatory frameworks is unclear. Economic policy uncertainty indicators started to increase steadily around 2016, and trade policy uncertainty became elevated in the 2017-2020 period (Figure 2.8, Panel A). Empirical estimates (Box 2.1) suggest policy uncertainty may have accounted for approximately one-sixth of the overall investment shortfall relative to the pre-GFC trend (Figure 2.5, Panel A), and around one-quarter of the ‘gap’ across OECD countries (Figure 2.5, Panel B). Furthermore, recent survey evidence suggests that uncertainty is increasingly a major obstacle to investment for firms (Figure 2.8, Panel B).

More recently, measures of policy uncertainty have spiked due to heightened concerns about economic risks from tariffs on international trade. Estimates suggest that if these levels of high?uncertainty persist, the resulting decline in investment growth could lead to real investment being up to 1.4?percentage points lower by end?2026 (Box 2.1). In contrast, if policy uncertainty reverts to the average levels observed over the 2015-2019 period, investment could be 1.8 percentage points higher by end?2026 compared to a baseline where economic policy uncertainty remains at current levels.

Weak demand and elevated uncertainty together appear to account for around half of the cumulative shortfall in real business investment relative to the pre-GFC trend. The remaining weakness is likely to be related to broader structural changes within the economy. As economies transition toward more digital and knowledge?intensive production – accelerated by the artificial intelligence (AI) revolution – investment has increasingly shifted toward intangibles, especially digital assets. At the same time, firms have channelled a lower share of their retained earnings and borrowed funds into productive investment, while maintaining persistently high required rates of return, or ‘hurdle rates’. Both these trends are likely to be associated with underlying factors that dampen investment, including declining competitive pressures and the rise of dominant firms, particularly in the digital sector, and difficulties in financing intangible?investments.

The transition towards a more digital and knowledge-intensive economy in recent years has had a significant impact on the composition of business investment. Investment has been channelled into knowledge-based intangible assets, such as software, data, and research and development (R&D), and complementary tangible investments, such as ICT hardware, including servers, networking equipment, and cloud infrastructure (André and Gal, 2024). Together, these assets are an important driver of firm productivity and innovation (Corrado et?al., 2021).

Real investment in digital and knowledge assets has outpaced other asset classes across most advanced economies (Figure 2.10). Real investment in software has increased three-fold since 2008 on average in OECD economies, while investment in ICT hardware and R&D has grown by around 100% and 45%, respectively, over the same period, compared to aggregate growth of 12% for machinery and a 7% decline in investment in structures. Digital investment has expanded particularly rapidly in countries such as the United?States and France, which have also seen strong growth in overall investment. In contrast, several countries, including Germany, have witnessed more modest increases. Investment has expanded particularly rapidly in tech-related firms (Figure 2.11). Firm-level data also show that AI-related companies invest in physical capital at nearly twice the rate of other firms, with their R&D investment rates more than three times higher (Figure?2.12).

At the same time, firms appear to not be undertaking all the available profitable marginal investments that lower costs of finance should encourage. The average pre-tax rate of return on corporate capital assets has remained high in many economies in recent years, after dropping during the GFC and pandemic (Figure 2.15, Panel A). There is also evidence that required returns on investment have increased, since the gap between hurdle rates – the minimum expected return a firm requires to proceed with an investment – and capital costs has widened (Figure 2.16, Panels A and B) (OECD, 2015; Shah, Bunn and Melolinna, 2024). While rising policy uncertainty may have contributed to higher risk premia and thus higher hurdle rates, the scale of the increase points to additional underlying structural factors.

The relatively stronger growth of digital and knowledge-based investment has not been sufficient to offset the impact of rising depreciation and weak tangible investment. Thus, net business investment as a share of GDP has declined across most OECD countries, despite a notable rise in digital and R&D investment (Figure 2.3). This decline reflects sluggish growth in traditional tangible investment categories — such as infrastructure and machinery — which still account for the largest share of business investment, alongside the higher depreciation rates for digital and knowledge-based capital (Figure?2.13, Panels A and?B). On average, digital and knowledge-based assets now make up just over 35% of total capital formation, in current prices, up from around 28% at the turn of the century (Figure 2.13, Panel C).2 As investment has shifted toward these faster-depreciating assets, the overall depreciation or ‘scrapping’ rate has risen.

Instead of investing in fixed assets, firms have increasingly allocated savings toward accumulating financial assets or distributed earnings to investors through dividends and share buybacks. The increase in corporate net financial asset positions has been predominantly associated with the accumulation of financial assets rather than reductions in debt (Figure 2.14, Panel A). Firm-level data suggest that rising corporate gross operating surpluses have been associated with increased cash holdings and higher shareholder payouts, mainly through dividends (Figure 2.14, Panels C and D). In the United States, Canada, Switzerland, and the United Kingdom, share buybacks have also contributed significantly to this trend.3 Concurrently, the number and value of corporate mergers and acquisitions remained elevated during much of the post-GFC period, particularly in the United States and Europe, indicating that financial resources were utilised to acquire existing capital assets from other companies, rather than to expand the overall capital stock through internal investments (Figure?2.14, Panels E and F). Another possible use of corporate savings would be to invest in other countries, but there is little sign of this in outward foreign direct investment flows from the major economies, other than in Japan (Figure?2.14, Panel B).

Market concentration has risen and business dynamism declined across advanced economies. These developments are increasingly linked to weak investment (Calligaris et?al., 2024). Measures of industry concentration have risen in Europe and the United States, while product market concentration has also increased in European economies (Figure 2.17). At the same time, data from listed firms show a notable increase in markups – measured as the ratio of total revenue to the cost of goods sold – across most advanced economies, with Italy being a notable exception (Figure 2.18).4 Among emerging-market economies, markups have increased in India and South Africa but eased slightly in Brazil, Chile, Indonesia and Mexico. Net investment rates among listed firms have declined in all countries apart from Korea over the same period.

In parallel with rising market concentration, business investment has also become increasingly concentrated among a small group of highly profitable “superstar” firms (Autor, 2020). This trend is closely linked to shifts in the composition of investment, as the greater scalability of intangible assets tends to boost returns for a limited number of firms, reinforcing “winner-takes-most” dynamics (Haksel and Westlake, 2018). The rise in overall market power appears particularly pronounced in the digital sector (Nicoletti, Vitale and Abate, 2023). These dynamics are further reinforced by growing concentration in institutional ownership. The widespread use of passive investment vehicles and consolidation in the asset management sector mean that many competing firms now share common large shareholders (Schmalz, 2017). Ownership concentration can weaken incentives for competition and has been associated with lower corporate investment (Gutiérrez and Philippon, 2018; Azar, Schmalz and Tecu, 2018).

Increased market concentration can suppress investment through several channels. One is that dominant firms may restrict output and raise prices rather than invest in expanding capacity, particularly when competitive pressure is limited (Gutiérrez and Philippon, 2017). Another mechanism is that only large ‘superstar’ firms have the financial resources, managerial capability, and know-how to make large?scale investments with uncertain payback periods, effectively crowding out investment by smaller, less productive, or new firms (Crouzet and Eberly, 2019). Firm-level data suggests that large firms account for a higher share of investment relative to their output, although the gap has not increased over time (Hanappi, Millot and Turban, 2023). In reality, the relationship between market power and investment is likely to be nuanced, and firm specific. For example, firms may first achieve market power through innovation and efficiency, gaining scale through network effects and intangible synergies. Over time, however, some may shift their focus from innovation and fixed capital investment toward rent-seeking strategies, such as regulatory capture and lobbying, to preserve their dominant position (Akcigit and Ates, 2021).

The availability of finance is a second key channel connecting the observed rise in intangible assets and precautionary corporate behaviour such as cash accumulation and high hurdle rates. Investment in software, data, and R&D as well as other intangibles, is harder to finance through bank loans, as these assets are more difficult to value and hence use as collateral. As a result, firms may need to self-finance these assets through retained earnings and higher cash holdings to reduce dependence on external financing (Demmou, Stefanescu, and Arquie, 2019), reducing available resources for investment. These constraints can be particularly binding for smaller firms and those operating in bank-based financial systems with less developed capital markets.

Taken together, increased market concentration and financing challenges for intangibles provide additional plausible explanations for the persistent weakness in business investment. The relative importance of these factors likely varies across countries, sectors, and firms. Other factors may also have played a role. Rising investment costs – including limited land availability, planning delays, regulatory burdens, and implementation capacity constraints – can also deter firms from launching new projects. Moreover, the growing tendency of firms to prioritise shareholder payouts over reinvestment may reflect increasing financialisation (Gutiérrez and Philippon, 2017) and incentives such as shareholder pressure to shift corporate strategy toward maximising short-term financial returns at the expense of long-term productive investment.

Other structural trends – such as ageing populations and labour shortages - may also have restrained business investment, particularly in advanced economies. When firms anticipate slower growth in the working-age population, they may revise down expected demand for goods and services, reducing the need to expand productive capacity. This may more than offset any stimulative effects on investment from the downward pressure on real interest rates associated with higher savings in ageing populations — although this effect may also wane as retirees dissave (Eggertsson, Mehrotra and Robbins, 2019). Meanwhile, persistent skill shortages have emerged in some countries and sectors (OECD, 2024a), with over 50% of EU and US firms identifying the scarcity of skilled staff as a major obstacle to investment (Figure 2.21 Panel B). If firms are unable to find the necessary skills to implement, operate or maintain new capital – and fully reap their benefits -, they may postpone investment projects, particularly high-skill, high-tech investments that require complementary human capital, such as ICT and green technology.5

Residential housing investment accounts for around a fifth of total of total investment across OECD countries and has also slowed in recent decades (Figure 2.19, Panel A). Following a period of strong housing investment in some economies prior to the GFC, the subsequent tightening in credit conditions, household deleveraging, and the marked downturn in many housing markets contributed to a dramatic fall in residential investment during 2008-09.6 Although growth in housing investment eventually recovered, the past decade has seen a further steady decline. This was interrupted only briefly by a spike in activity following the pandemic in the context of low interest rates, increased demand for larger living spaces and government support measures. Real housing investment has contracted in recent years and continued to do so in most OECD countries over the year to the fourth quarter of 2024.

A structural shortfall in housing investment relative to demand has contributed to rising house prices. Several factors have fuelled housing demand, including urbanisation, population growth, rising incomes, increased immigration, a shift toward smaller households, and greater access to mortgage credit (OECD, 2021). The supply-demand imbalance is a key reason why house prices and rents in many OECD countries have risen significantly faster than both inflation and household incomes over time, eroding affordability. These pressures are particularly acute in major cities and economically dynamic regions, where growth in demand for housing has far outpaced supply. Consequently, housing costs have absorbed an increasing share of household budgets, often at the expense of other essential spending categories such as food and transport (Figure 2.19, Panel B). Between 2000 and 2023, the share of consumption spent on housing rose by an average of close to three percentage points, reaching 17% in the median OECD country.

The low responsiveness of housing supply to growing demand reflects a range of structural and regulatory constraints (OECD, 2021). The time required for planning and construction means supply adjustments are sticky, allowing price pressures to build up. In addition, rising construction and renovation costs (OECD, 2023), partly driven by stricter energy efficiency and environmental sustainability standards, have added to overall investment costs. Demand has been particularly concentrated in job-rich urban areas, where geographical limitations and regulatory restrictions, including land-use and zoning rules, are most restrictive (Cournède, De Pace and Ziemann, 2020). Other factors, such as rental market regulations, landlord?tenant laws, and labour shortages also affect the efficient functioning of housing markets and the construction sector, potentially discouraging investment in both the construction and maintenance of?dwellings. In addition, persistently low productivity growth in the housing construction sector—often attributed to regulatory factors—may further undermine cost-efficiency and scalability (D’Amico et al., 2024).

Public investment – accounting for around one sixth of total investment across OECD countries?– declined significantly in many economies in the aftermath of the GFC. The decline was largely due to fiscal consolidation efforts, particularly in euro area countries that faced acute sovereign debt pressures (OECD, 2015). In contrast, the policy response to the pandemic was different, with many governments raising public investment to support the recovery (Figure 2.20, Panel A). This was especially evident in the European Union, where initiatives such as the NextGenerationEU funds have played a central role in boosting investment. A substantial share of these recovery packages was directed towards investment in renewable energy, energy efficiency, and sustainable transport infrastructure to support demand and progress toward long-term climate goals.

Despite the recent upturn in some countries, critical public investment needs remain. Net public investment – after accounting for the depreciation of the existing capital stock – remains below pre-GFC levels (Figure?2.3, Panel C), raising concerns about deteriorating infrastructure in some countries and sectors. The stock of public capital relative to GDP has stagnated or declined over the past decade in many countries. Marked sectoral differences have emerged: while the share of public investment has increased in areas such as energy, defence, and healthcare, other sectors such as transport have declined (Figure 2.20, Panel B). Such declines can lead to quality shortfalls. The perceived quality of transport infrastructure declined in countries such as the United States and the United Kingdom, for example, in the years prior to the pandemic (World Economic Forum, 2019), while declines in education performance were signalled by PISA (Programme for International Student Assessment) scores declining across many OECD countries between 2018 and 2022. Moreover, insufficient public investment may also constrain private investment, as inadequate transportation, energy or digital infrastructure can limit firms’ growth and investment opportunities.

Recent announcements of further increases in defence spending – particularly among European countries in response to heightened geopolitical tensions – are expected to result in some increase in public spending. However, the overall boost to public investment may be modest, as only around 20% of defence spending tends to be allocated to capital investment (see Chapter 1).

Public policies help shape the factors identified above as underpinning recent investment trends. Clear and predictable measures that incentivise business investment are particularly important, given business investment has been the main component behind the weakness in net aggregate investment across countries. Key messages from the analysis above are the importance of reducing policy uncertainty, promoting competition and business dynamism and alleviating financing constraints for intangible investment. These are consistent with many of the country?specific policy recommendations for boosting investment in Chapter 3 and summarised in Panel A of Figure 2.21, and would help overcome some of the key obstacles to investment commonly cited by businesses (Figure?2.21, Panel?B). Outside of the business sector, there is scope to boost housing investment in some countries through regulatory reforms that include the easing of land-use restrictions and rental market regulations. In addition, high-quality public investment – particularly in green and digital infrastructure, research and development, health, and education – is needed in many economies and can boost potential output growth, especially if it crowds-in private investment spending.

Clear and predictable public policy is needed to assuage economic policy uncertainty and help rejuvenate investment growth, as highlighted in Box 1. While the predominant factor behind the recent rise in economic policy uncertainty in advanced economies has been higher trade policy uncertainty, available measures also show increased uncertainty since early 2024 in categories related to fiscal, regulatory and climate policies. As such, improving the general clarity and predictability of economic policies in all areas of government could underpin stronger investment rates. This is a policy recommendation contained in many of the country notes in Chapter 3, including for the United States, Hungary, Korea and Türkiye. One potential channel is that reduced uncertainty could prompt businesses to reduce the risk-premia incorporated in the hurdle rates used for investment decisions (European Investment Bank, 2024). Specific approaches to reduce policy uncertainty may include:

• Conducting trade policy through a transparent and rules-based system with efforts made by governments to avoid introducing sudden policy changes that are unpredictable for businesses and consumers. Working together within the global trading system to find ways of addressing concerns with current trading arrangements could also help governments provide certainty about the future.

• Reducing fiscal policy uncertainty by legislating and implementing credible medium?term strategies for achieving sustainable public finances amid rising fiscal pressures (e.g. from population ageing, climate change and defence spending). Strengthening fiscal frameworks by reinforcing transparent, rules-based approaches – while ensuring that fiscal rules are designed with well-defined, credible escape clauses – can help maintain policy credibility while preserving flexibility in the face of major shocks. Implementing stable and predictable tax rules, combined with clear dispute resolution mechanisms, can also help mitigate uncertainty (Box 2.3).

• Reducing complexity and improving transparency around domestic structural policy changes in areas such as regulation of product and labour markets, migration policy and the financial system. Undertaking robust and transparent regulatory impact assessments would help give investors greater certainty. In addition, efforts to build a strong consensus around structural reforms by working with key stakeholders will support their longevity.

• Affirming ongoing international commitments to mitigate climate change and outlining the policy approach to achieving climate commitments. At the same time, implementing well-designed adaptation measures that minimise the potential economic cost of future disruptions from climate change would provide greater certainty about the future operating?environment.

Policies and institutional arrangements shape the incentives of firms to invest, their ability to attract the required resources to do so and overall economic stability. Sound macroeconomic policies and a healthy financial system are the foundation of strong and resilient investment growth. Monetary policy should focus on achieving low and stable inflation and any additional statutory objectives. In some emerging market and developing economies, additional efforts to entrench credible monetary policy frameworks could provide greater monetary policy certainty and help anchor inflation expectations. In addition, macroprudential policy tools should be developed and deployed where necessary to guard against the build-up of systemic financial risks that might become the basis for future financial shocks and impede access to finance.

Structural reforms can promote business dynamism and encourage firms to sharpen their focus on innovating and investing to stay ahead of competitors. Reducing the cost of regulations to businesses, both through reforming de jure regulations and implementing them in a way that does not unnecessarily raise costs, promotes firm entry and the ability of successful firms to expand. This can help mitigate trends towards rising market concentration, including in markets based around new intangible assets such as artificial intelligence technologies. Country-specific policy recommendations to promote investment by improving aspects of competition policy are made in the majority of country notes in Chapter?3 (Figure?2.21, Panel A). In emerging-market economies, clear and predictable regulatory frameworks can also reassure foreign investors about the operating environment.

While, in theory, more restrictive domestic regulations could simply encourage firms to invest abroad, this is only an option for a subset of firms in certain sectors, with foreign investment more likely to be determined by a need to enter foreign markets, or acquire resources, or link to research or financial centres. Indeed, the available evidence does not support the notion that foreign investment is a substitute for domestic investment (Desai et al., 2005; Goldbach et al., 2019), with the importance of a wide variety of structural policies for domestic investment growth empirically well established (égert, 2021).

New OECD estimates indicate that reducing product market regulation in network industries is associated with an increase in the capital stock in downstream business sectors. Policy experiments suggest that network sector deregulation between 1980 and 2023 could have raised the capital stock by around 4% in the average OECD economy, with gains reaching 10% in manufacturing and 5% in business services (Figure 2.22, Panel A). Looking ahead, bringing regulations in more highly-regulated economies towards the regulatory levels of their least?regulated peers could raise the economy-wide capital stock by up to 1.5%, with notably larger impacts for the manufacturing sector (Figure?2.22, Panel?B). The effective design and implementation of product market regulations can also be hampered by the influence of lobbying activities. Reforms that improve the transparency and accountability of lobbying could address this and weaken the potential for regulations to be captured by incumbent firms and fuel rising market concentration (OECD, 2024b).

Well-functioning insolvency frameworks promote business dynamism by encouraging firms to invest and resources to be efficiently allocated from weaker exiting businesses to higher performing ones. At the same time, overly stringent bankruptcy regimes can deter risk-taking, weighing on innovation and bias firms’ choice of capital structure towards tangible investments at the expense of intangibles (Garcia?Posada and Mora-Sanguinetti, 2014). This is highlighted by OECD analysis showing that the economic gains from lowering barriers to efficient corporate restructuring increase with a sector’s intangible asset intensity (André and Demmou, 2022). Many countries have undertaken important reforms to insolvency frameworks over the past decade. Between 2016 and 2022, there was particularly notable progress in Europe and Canada (André and Demmou, 2022). Nonetheless, there remains scope for additional regulatory efforts in most countries to streamline insolvency processes, refine restructuring tools and improve the treatment of failed entrepreneurs.

The stringency and complexity of land use regulations influence business dynamism and housing investment by determining the activities that can be undertaken in a certain location. More stringent and complex land use provisions can be a barrier to firm entry and moderate investment in physical assets in some sectors such as retail trade, as well as dwelling investment. Reducing complexity and introducing greater flexibility in zoning systems, including by being less prescriptive about the specific activities that can be undertaken on a parcel of land, can enable firm entry and growth, as well as the ability of the economy to adapt to ongoing structural change. Based on the country notes in Chapter?3, such recommendations appear to be particularly relevant in Australia, Austria, Croatia and Sweden. Sub-national governments are often responsible for land use regulations and the implementation of planning approvals. Ensuring these administrations have sufficient fiscal incentives to reduce the complexity of regulations and streamline approvals can be important. An example is Switzerland, where local government finances are heavily reliant on property taxation and there is significant flexibility afforded to authorities to set the applicable tax rates. Efforts to harmonise regulations across sub-national jurisdictions and minimise responsibility overlaps could also reduce the cost of business investment, as well as promote spending on the housing stock. Indeed, a high degree of decentralisation of land-use decisions and responsibility overlaps are empirically associated with high rigidity of housing supply (Bétin and Ziemann, 2019).

As discussed earlier, overly strict rental market regulations have inhibited housing investment in some countries. Regulations such as rent controls and landlord-tenant rules can provide protections for renters but may also reduce incentives to invest in rental housing due to lower rental revenues and the greater difficulty of selling properties (Kholodilin and Kohl, 2020). For instance, rent controls in San Francisco are estimated to have reduced housing supply by as much as 15% (Diamond, McQuade and Qian, 2019). OECD work has found that the house price elasticity of residential construction is considerably lower where there is stringent rental market regulation (Cavalleri, Cournède and ?zs??üt, 2019).

Minimising regulatory barriers to foreign direct investment (FDI) can help facilitate the best allocation of global investment and enhance competition. Capital spending may increase in both source and destination countries when vertical FDI is involved, leading to the buildup of global value chains. Nonetheless, as measured by the OECD FDI regulatory restrictiveness index, policy restrictions on inward FDI are high in some economies, especially in emerging-market economies (Figure 2.23). This may have contributed to the modest FDI inflows observed in recent years (Figure 2.14, Panel B). A renewed drive to ease or eliminate FDI policy barriers could support such inflows and capital spending in destination?countries. According to the country-specific recommendations in Chapter 3, such a policy approach may be particularly relevant in Costa Rica, Indonesia, the Philippines and Viet?Nam, as well as in some advanced economies such as Korea, New Zealand and Switzerland.

Policies that reduce financing frictions for intangible investment can alleviate the need for firms to retain cash resources to self-finance future intangible investment projects. It may also help enable young and small firms to undertake investment projects, promoting competitive pressures in more concentrated markets. Financial frictions can be especially acute in bank-based financial systems for firms without traditional forms of collateral. Such firms include those with a high proportion of knowledge-based assets and start-ups with limited credit history. Improving the depth of capital markets would support a more diverse range of funding options and promote competition between lenders, thus improving access to finance for new firm entrants and intangible investments. In Europe, making further progress on implementing the Savings and Investments Union will be important in this regard. Reforms that improve access to credit are also relevant in emerging-market economies including Brazil and India (Chapter 3).

Developing certain segments of capital markets may require some public financial support and regulatory actions, provided they do not endanger financial stability. Possible examples include adjusting regulatory restrictions on the investment activities of pension providers, reducing administrative requirements on fintech lenders and equity crowdfunding platforms, reforms that enable “open finance”, and public investment in venture capital markets. The latter may be particularly well-suited to funding investments by innovative firms with non-standard risk profiles (Calvino, Criscuolo and Menon, 2015). Government involvement in venture capital deals has been particularly notable in Hungary but has also played a role in many other European economies (Figure 2.24). There can be synergies between promoting venture capital and efforts undertaken in some countries to develop specific public equity markets for smaller and innovative firms (for example, KOSDAQ in Korea, Mothers Exchange in Japan and SME growth markets in the European Union). These exchanges typically have simplified listing and disclosure requirements and can provide an appealing exit option for venture capital investors once successful firms expand (Carvajal and Dider, 2024). Further developing market-based finance could also ease access to finance in emerging-market economies but would often benefit from complementary reforms that promote macro-financial stability and access to digital financial technologies (Banerjee, Mehrotra and Zampolli, 2024).

The availability of workers with skills that match business needs can both encourage capital investment and maximise its productivity payoff. This can be aided by structural reforms that lower frictions in the labour market, such as reducing the prevalence of unnecessary non-compete clauses (Andrews and Garnero, 2025). Developing a workforce with skills that evolve with underlying structural changes in the economy can also be an important enabling factor for new capital investment, as skills demands are evolving rapidly with population ageing, the digital and green transitions (OECD, 2024a). More broadly, recent OECD estimates suggest that around one-sixth of the productivity slowdown in OECD countries since the mid-2000s can be accounted for by a weakening in human capital accumulation (Andrews et al., 2024). A key need is for effective government efforts to promote investment in lifelong learning. Policy reform priorities include ensuring strong foundational skills that form the basis for further learning, the availability of high-quality adult training programmes, and encouraging participation in education by adapting programs and qualification requirements, including for those currently in the workforce.

Public capital spending can play a key role in supporting aggregate investment, especially when economies are operating at less than full capacity. Where fiscal space allows, public investment can provide an immediate boost to economic activity by stimulating demand and employment, particularly in sectors with strong multiplier effects (Mourougane et al., 2016). In the longer term, high-quality public investment can crowd?in private investment, foster innovation, and raise human capital (Box 2.2), thereby boosting potential output growth.

However, public investment can also crowd out private spending—especially in contexts where it increases borrowing costs for firms, either by heightening concerns over debt sustainability, or if it substitutes private investment rather than complements it. Anchoring public investment within a credible medium-term budgetary framework can enhance policy predictability, support prioritisation and sequencing, and strengthen fiscal sustainability (OECD, 2019). Robust public investment management frameworks are essential to ensure the efficiency of public capital spending and its complementarity with private investment. Close coordination with subnational governments is often required, particularly for infrastructure projects with regional development objectives.

Public investment can help enable the green and digital transitions, potentially crowding-in private investment. There remain significant investment needs in response to climate change. Global financing needs for climate mitigation are estimated at USD?5?trillion a year until 2030 (IMF, 2023). Investment needs for adaptation are also estimated to be large, though lower than for mitigation. Country?specific policy recommendations for increased climate-related public investment are highlighted in Chapter 3 for many advanced economies, as well as Malaysia. To complement public spending, other policy instruments – including pricing of climate-related externalities, information provision and regulations – can help more closely align private incentives with social benefits for climate mitigation and adaptation activities. Targeted public investment in basic research, through grants or publicly conducted R&D, can also catalyse private innovation in fields such as clean energy and climate?technologies. Similarly, public investment can help support and encourage private investment in digital infrastructure. Efficient, reliable, and widely accessible digital infrastructure is essential to unlocking the full economic benefits of digitalisation, and public investment is often needed to extend coverage to rural areas or finance costly infrastructure projects with high positive externalities.

Tax policy settings also influence the conditions for private investment. While the recent decline in the user cost of capital has not been accompanied by strong aggregate investment growth in many economies, certain tax policy changes may be effective in incentivising investment spending. Low corporate tax rates on a broad corporate tax base can support investment by limiting the complexity of the tax system for businesses and distortions between different kinds of taxpayers. However, targeted measures such as relatively generous capital allowances or reduced non-profit taxes may be a more cost-effective way to support investment spending than general reductions in the statutory corporate tax rate (Box?2.3). Carefully designed tax incentives can also help address market failures in areas such as R&D spending and clean technology adoption (González Cabral et al., 2023; Dressler and Warwick, 2025). Temporary tax breaks, such as a short-lived acceleration in depreciation deductions, can also have powerful effects by advancing capital spending (Eichfelder and Scheider, 2014). However, such measures can be associated with deadweight costs and lower spending after the tax measure expires. In general, tax incentives may also be less effective in raising investment among firms with minimal profits (for example, small firms and start-ups), where these incentives do not have provisions, such as allowing firms to carry?forward tax benefits, or tax credits to be refunded for firms without a tax liability.

Tax measures that favour the accumulation of debt over equity can have negative consequences for financial stability by incentivising excessive debt accumulation and can have adverse implications for investment activity (égert, 2021; Blundell-Wignall and Roulet, 2013). Incentives to favour debt financing may also inhibit the funding of intangible investments given that the underlying characteristics of these assets (uncertain returns, non-rivalry and low redeploy ability; Demmou and Franco, 2021) pose challenges in providing them as collateral against loans. However, this effect may be offset somewhat in tax systems that allow expensing of intangible investments.

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To help assess the extent to which cyclical fluctuations have contributed to the observed dynamics in business investment since the global financial crisis (GFC) and the pandemic, a reduced-form investment model is estimated. This relates real business investment growth to its own lag as well as to current real output growth. The model is estimated for the 17 OECD countries for which data on real business investment are available. This empirical framework aims to capture the short-term response of investment to output fluctuations, shedding light on the role of demand-side factors in shaping investment patterns over recent cycles. The results are presented in Table 2.A.1.

An extended model is subsequently estimated that incorporates the standard determinants of investment implied by neo-classical frameworks, while also allowing for the role of time-varying capital depreciation rates, real equity prices (which may reflect corporate balance sheet conditions and elements of Tobin’s Q), and capacity utilisation, proxied by the output gap (with a prior that a more negative output gap reduces the need to undertake new investment). The model is estimated using an unbalanced panel comprising 13 OECD economies, with quarterly data from 1993Q1 to 2022Q3, subject to data availability. All variables enter the model in logarithmic form, except for the output gap. In line with Pelgrin et al. (2002), the user cost of capital is introduced as log(1+UCC). Country-specific effects are controlled for using a least squares dummy variable estimator. The estimation results are presented in Table 2.A.2.