Investment rate, growth, and the accelerator effect in the supermultiplier model: the case of Brazil

Abstract

This paper investigates the role of demand in the productive investment evolution in the Brazilian economy. First, it assesses the long-run relationship between the investment rate and GDP growth, taking annual data from 1962 to 2015. The paper then constructs a ‘final demand’ index and estimates its impact on the productive investment growth rate, taking quarterly data from 1996Q1 to 2017Q2, highlighting a shift in the aftermath of the 2008 global financial crisis. The results support two hypotheses of the supermultiplier model of Freitas and Serrano (2015) and Serrano et al. (2017) for the Brazilian economy: (i) non-capacity-creating expenditures lead productive investment; and (ii) there is a very slow adjustment of the investment rate to demand growth, as described by the flexible accelerator process.