CBI trend data unlocks investment understanding

Professor Ciaran Driver has worked with 20 years of CBI data to inform his research on capital investment in the manufacturing sector.

By Elliott White

The Confederation of British Industry‘s (CBI) Industrial Trends Survey is fifty this summer.  The survey provides a useful, timely insight into the attitudes of manufacturing companies for policy makers, business people and academics.

In its fifty years, the Industrial Trends Survey has provided a wealth of material for predictive purposes and for historical studies by researchers.  It offers a long time series of directly comparable data that go beyond the areas covered by Office of National Statistics surveys. For example, it asks questions about capacity utilisation, investment intentions and feeling of certainty about the future of the market.

Ciaran Driver¹, Professor of Economics at the Innovation Studies Centre, has used  the trend data in his work on capital investment in industry.  This appeared in a recent paper in the International Journal of Industrial Organisation.  This research was also highlighted by the CBI as a paper of note in its own publication: “Fifty not out – half a century of the CBI industrial trends survey”.

Professor Driver’s paper “Real options – delay vs. pre-emption: Do industrial characteristics matter?” used the Industrial Trend Survey data to test real option theory.  Real option theory can be used to explain industrial investment decisions and examines why the rate of investment speeds up or slows down. 

Previous research identified concepts of irreversibility and first mover advantage as important.  Professor Driver explains:
“Irreversibility tends to slow investment.  Simply, once you commit to buying some assets, the resale value may be negligible.  On the other side, first mover advantages sometimes accrue from early investment.”

Using CBI time series data and this understanding, Professor Driver’s findings suggest that irreversibility matters for slowing investment but only when combined  with a concept called ‘value of waiting’.    That concept depends on the information signals that inform a capital investment decision.  “Some signals are only transient while others are persistent,” said Professor Driver.  “That distinction is important in judging the balance between the influences from irreversibility and first mover advantage”.

This applied analysis of real option theory is partly possible because the Industrial Trend Survey contains questions relating to capital investment decisions, the value of weighting and uncertainty about the future of the market in which respondents operate.

The Industrial Trends Survey was first published by the Federation of British Industries (a CBI forerunner) in 1958.  When launched, British industry was being buffeted by the pace of economic change, and there was demand for prompt data on the effects on the economy, which the survey was designed to provide.

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1. Professor Driver also worked with Paul Temple, University of Surrey and Giovanni Urga, Cass Business School on paper paper mentioned here.