Business investment performance in Scotland

Richmond, Kenny and Turnbull, Jennifer (2017) Business investment performance in Scotland. Fraser of Allander Economic Commentary, 41 (1). pp. 82-93. ISSN 2046-5378

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Abstract

Business investment (including spending on machinery, buildings, ICT, R&D) is a key driver of productivity. New data shows that Scotland’s business investment rate has been lower than nearly all other OECD countries for a number of years, resulting in a low level of capital stock per worker. Scotland’s low business investment is likely due to a number of factors, including: industrial structure: a small manufacturing sector and larger public sector; weak business R&D expenditure; low levels of competition, reducing the incentives to invest: management short-termism in some companies; low productivity reducing potential returns from investment; and, low wage growth reducing the cost of labour relative to capital. Business investment by Scottish-owned companies appears to be particularly low. Low business investment is likely a major reason for Scotland’s low productivity levels and growth.

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