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Investment, Uncertainty, and Irreversibility in Ghana

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Author Info
Catherine Pattillo (International Monetary Fund)
Abstract

Panel data on Ghanaian manufacturing firms are used to test predictions from models of irreversible investment under uncertainty. Information on the entrepreneur's subjective probability distribution over future demand for the firm's products is used to construct the expected variance of demand, which is used as a measure of uncertainty. Empirical results support the prediction that firms wait to invest until the marginal revenue product of capital reaches a firm-specific hurdle-level. Moreover, higher uncertainty rasies the hurdle level that triggers investment, and uncertainty has a negative effect on investment levels that is greater for firms with more irreversible investment. Copyright 1998, International Monetary Fund

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Publisher Info
Article provided by Palgrave Macmillan Journals in its journal IMF Staff Papers.

Volume (Year): 45 (1998)
Issue (Month): 3 ()
Pages: 5
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Handle: RePEc:pal:imfstp:v:45:y:1998:i:3:p:5

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Related research
Keywords:

Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models

Cited by:
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  1. Paul Butzen & Catherine Fuss & Philip Vermeulen, 2002. "The impact of uncertainty on investment plans," Research series 200205-5, National Bank of Belgium. [Downloadable!]
  2. Bigsten, Arne & Soderbom, Mans, 2005. "What have we learned from a decade of manufacturing enterprise surveys in Africa ?," Policy Research Working Paper Series 3798, The World Bank. [Downloadable!]
    Other versions:
  3. Danny Cassimon & Peter-Jan Engelen & Hilde Meersman & Martine Van Wouwe, 2002. "Investment, uncertainty and irreversibility: evidence from belgian accounting data," Research series 200205-4, National Bank of Belgium. [Downloadable!]
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