Adjustment Costs and Irreversibility as Determinants of Investment: Evidence from African Manufacturing
AbstractIn this paper we investigate if the predictions of three different models of capital adjustment costs are consistent with the observed investment patterns among manufacturing firms in five African countries. We document a high frequency of zero investment episodes, which is consistent with both fixed adjustment costs and irreversibility and inconsistent with quadratic adjustment costs. We model the decision to invest using a dynamic discrete choice model and find evidence of irreversibility and not fixed costs. We finally model the investment rate as a function of the size of the capital disequilibrium. The results confirm that irreversibility is an important factor affecting the investment behaviour of African manufacturing firms. Some implications of this finding are discussed.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.
Volume (Year): contributions.4 (2005)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.degruyter.com
Find related papers by JEL classification:
- D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- M. Grazzi & N. Jacoby & T. Treibich, 2013.
"Dynamics of Investment and Firm Performance: Comparative evidence from manufacturing industries,"
wp869, Dipartimento Scienze Economiche, Universita' di Bologna.
- Marco Grazzi & Nadia Jacoby & Tania Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative evidence from manufacturing industries," LEM Papers Series 2013/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Marco Grazzi & Nadia Jacoby & Tania Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative Evidence from Manufacturing Industries," GREDEG Working Papers 2013-09, GREDEG CNRS, University of Nice-Sophia Antipolis.
- Shiferaw, Admasu & Bedi, Arjun S., 2010.
"The Dynamics of Job Creation and Job Destruction: Is Sub-Saharan Africa Different?,"
Proceedings of the German Development Economics Conference, Hannover 2010
59, Verein für Socialpolitik, Research Committee Development Economics.
- Admasu Shiferaw & Arjun Bedi, 2010. "The Dynamics of Job Creation and Job Destruction: Is Sub-Saharan Africa Different?," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 22, Courant Research Centre PEG.
- Shiferaw, Admasu & Bedi, Arjun S., 2009. "The Dynamics of Job Creation and Job Destruction: Is Sub-Saharan Africa Different?," IZA Discussion Papers 4623, Institute for the Study of Labor (IZA).
- Alan Harding & Måns Söderbom & Francis Teal, 2004.
"Survival and Success among African Manufacturing Firms,"
Development and Comp Systems
- Alan Harding & Måns Söderbom & Francis Teal, 2004. "Survival and Success among African Manufacturing Firms," CSAE Working Paper Series 2004-05, Centre for the Study of African Economies, University of Oxford.
- Shiferaw, Admasu, 2009. "Survival of Private Sector Manufacturing Establishments in Africa: The Role of Productivity and Ownership," World Development, Elsevier, vol. 37(3), pages 572-584, March.
- Admasu Shiferaw, 2009. "Which Firms Invest Less Under Uncertainty? Evidence from Ethiopian Manufacturing," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 2, Courant Research Centre PEG.
- Gebreeyesus, Mulu, 2009. "Inactions and Spikes of Investment in Ethiopian Manufacturing Firms: Empirical Evidence on Irreversibility and Non-convexities," UNU-MERIT Working Paper Series 061, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology.
- Abiola Babajide Ph.D, 2012. "Effects of Microfinance on Micro and Small Enterprises (MSEs) Growth in Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(3), pages 463-477, July.
- Jidoud, Ahmat, 2012. "The Sources of Macroeconomic Fluctuations in Subsaharan African Economies: An application to Côte d'Ivoire," TSE Working Papers 12-346, Toulouse School of Economics (TSE).
- Chan, Rosanna, 2008. "Financial constraints, working capital and the dynamic behavior of the firm," MPRA Paper 27153, University Library of Munich, Germany, revised Aug 2010.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.