Τhe determinants of investment
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Date
2025-09-23
Authors
Μουστακόπουλος, Γεώργιος
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Abstract
This thesis examines the determinants of firms intentions to increase investment over the-next semester in the euro area. We merge harmonized firm level responses from the-ECB’s SAFE survey with country semester indicators of trade frictions (tariff restrictions-MATR, non-tariff MATR_NT), global uncertainty (WTUI, WUI), geopolitical risk-(GPR, GPRT, GPRA), global equity sentiment (WSI), and short term interest rates. We-estimate pooled logit models with country fixed effects. We report both odds ratios and-average marginal effects (AMEs) to express economic magnitudes in percentage point-terms. Three results stand out. First, firm fundamentals dominate the cross section: larger-firms, non-manufacturing sectors (Construction, Trade, Services), and especially-profitable firms are substantially more likely to plan investment increases, while-financially vulnerable firms are much less likely. Very young firms (<2 years) are-modestly more expansionary, intermediate age bands are slightly negative and only-marginally significant. Second, external conditions matter in specific ways: the tariff-type-restriction index (MATR) is negatively associated with investment plans, the non-tariff-index (MATR_NT) is positively associated, and WSI is strongly positive. Uncertainty-indices are near-unit at the native scale but imply roughly +(2–3)% higher odds for a-1,000-point increase. Third, once these controls are included, short-term interest rates and-geopolitical risk measures add little explanatory power. Results are robust to reporting-AMEs alongside odds ratios and to alternative coding of the outcome. Policy implications-follow directly: measures that strengthen profitability and balance sheet resilience are-likely to yield the largest near term boost to investment intentions, reducing tariff type-trade frictions and maintaining predictable communication that supports market-sentiment can further raise plans to invest.
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Keywords
Investment intentions, Firm fundamentals, Trade restrictions, Uncertainty, Geopolitical risk, Safe survey