Examples of positive externalities include the spillovers of benefits which occur when firms train workers, invest in research and development and adopt new technologies which generate “learning by doing’ benefits. Examples of negative externalities include pollution or collusive or abusive manipulation of markets. Given that investable resources are scarce, long term development requires that social rates of return are high.
Although the labor share fluctuated considerably during and immediately after the global financial crisis, the average for the decade was lower than that for the 1990s (Chart 5). Furthermore, deflation significantly affected firms’ investment behavior. The prospect of deflation reduced the discounted present value of investment returns and lowered firms’ investment appetite.