Business investment - drivers, barriers and economic impacts. A rapid literature review

As part of a wider strategic development exercise to understand transformation in the productivity levels of Scottish businesses, Scottish Enterprise commissioned an evidence review on the drivers, barriers, and enablers of business investment, and the benefits to businesses and the economy. This evidence base will input to the development of SE support that will focus on enabling businesses to invest as a route to productivity-driven growth.

The evidence reported is based on a rapid literature review of peer-reviewed academic literature and grey literature. The selection criteria were evidence published in the last 10 years and limited to the UK and small open economies. 120 documents were included in the analysis.

Business investment results in economic benefits at firm and aggregate levels, namely productivity and economic growth (GDP), as well as increased employment, profitability, sales, market value, energy and operational efficiency, innovation and export value. A traffic light system is used to categorise the strength of evidence about factors that affect business investment and the following factors constitute strong evidence: larger business size, exporter status (positive effects on business investment); positive assessment of return on investment (positive); public policy support and regulation (positive); firm-level uncertainty on ROI and macroeconomic uncertainty (negative); firms’ financial resources and access to finance (positive if high and vice versa); fiscal and monetary policies (context-specific).

The last section of the report includes lessons drawn from the evidence review and possible responses to them with regard to evidence base building and potential business support responses.