Determinants of private investment dynamics in Portugal: An aggregate ex-post assessment for public policies guidance

Abstract

Understanding and forecasting private investment is required for the choice of efficient public policies and also for effective stabilization economic policies. Guided by a set of determinants selected from the results predicted by the literature, both theoretical and previously applied to the Euro Area and to Portugal, this paper assesses empirically/ex-post the determinants of the dynamics of aggregate private investment in Portugal. The set of determinants and respective indicators are integrated in the context of an augmented accelerator model of private investment, applied to total, non-construction, and construction investment separately, using quarterly data generally covering the four decades 1977-2020. The results, in addition to the dynamics of the accelerator mechanism, point to demographic trends and trends in the investment in intellectual property products, in the sectoral composition of the economy, and in the labor productivity vis-à-vis the European Union – together with fluctuations in financial volatility and changes in the context underlying bank lending – as main determinants of investment dynamics in Portugal over the last four decades. The findings of this assessment can contribute to inform the choice of public policies aimed at improving productive capacity, as well as the search for improvements to the traditionally challenging investment forecasts in Portugal.