The European Investment Bank (EIB) has released a new working paper on the role of investment during the Covid-19 pandemic, saying that the impact of the pandemic was felt unevenly across sectors.
The report, Intangible Differences: Investment During the Pandemic and the Role of Financial Constraints, posits that investment into land and buildings, research and development and organisational capital were the least sensitive to the shocks brought about by the pandemic. On the other side of the coin were employee training, machinery and equipment, and software and data, which the authors said were the most heavily impacted.
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It concluded: “R&D investment declined less than investment in machinery and equipment during the Covid-19 pandemic, which is in line with previous findings for the global financial crisis (e.g, European Commission, 2022). At the same time, other assets show a mixed picture that highlights the heterogeneity within tangible and intangible investment. Compared to investment in machinery and equipment, R&D investment seems to be less hampered by financial constraints before the Covid-19 period.”
It added: “The adverse effect is still slightly milder but becomes much more similar during the Covid-19 pandemic. This finding remains robust using various alternative indicators to proxy financial constraints. Thus, although financial constraints were not more binding for R&D compared to machinery and equipment investments in absolute terms, their importance increased more for R&D during the pandemic.”
Even with the relative positive news for R&D investment, it was not entirely a bed of roses: the EIB’s authors estimate that the pandemic saw a decrease in R&D investments of 20%, with a fall of two percentage points in the probability of investing in R&D.
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Likewise, the probability of investing in training fell by ten percentage points. However, the authors did note that the impact on investments in land and buildings, software, and organisational capital was smaller.
They concluded: “Overall, these results show that focusing on the aggregated investment categories hides significant heterogeneity across specific asset types. We find that R&D investment declined the least among the analysed assets, […] showing that the share of R&D investment is counter cyclical.”
In putting together the paper, the EIB said it was looking to analyse firm-level investment behaviour across the European Union in relation to the Covid-19 pandemic, comparing that period to what came before and what followed. In making its analysis, the EIB used as a data source the European Investment Bank Survey (EIBIS).
