Investmentless recovery ahead?

Fatas-Mihov Blog post rarely but whenever they do, it is full of insights. The duo have written some super papers and make a mark in the blogposts as well.

In the recent post, they point that recoveries post-recessions in 1991 and 2001 were investmentless.

What is interesting in this chart is that the last two recoveries were also special when it comes to the behavior of investment. In fact, the behavior of investment seems to mimic what we see above in the employment chart. While during the 1975 and 1982 recoveries investment grew faster than GDP (so the ratio increased), during the 1991 and 2001 recessions, investment grew at the same pace as GDP (so the ratio is flat). And this is more of a surprise if we take into account the fact that real interest rates remained very low during these two recoveries (more so in 2001).
 
 
We know that investment is the most volatile component of GDP so the V-shape that we see in 1975 and 1982 is what we would normally expect. By definition, it has to be that other components of GDP played a stronger role (relative to previous recessions) in 1991 and 2001 (consumption, exports). What was the exact role of those components will (hopefully) be the subject of a future post in this blog. What is interesting so far is the similarity in the behavior of employment and investment across the most recent recessions.
 
I am waiting for subsequent posts but I think the recovery is going to be mainly driven by consumption and exports. Going by reading the various crisis episodes exports rebound the fast. And as stimulus measures target consumption, it should also be a part of the story.
However, I was pretty perplexed by this finding. If recovery is jobless and investmentless is it a recovery at all? We usually associate growth pick-ups with growth in jobs and investment. I mean I can understand both are low, but not contributing at all?
Just too bugging all this.
Addendum:
for more on jobless recovery, see previous posts
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One Response to “Investmentless recovery ahead?”

  1. Recovery due to stimulus or private investments? « Mostly Economics Says:

    […] due to stimulus or private investments? By Amol Agrawal I had earlier referred to the possibility of US recovery being investmentless. […]

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