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Investment, Uncertainty, and Irreversibility in Ghana

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  • Catherine Pattillo

    (International Monetary Fund)

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    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 raises the hurdle level that triggers investment, and uncertainty has a negative effect on investment levels that is greater for firms with more irreversible investment.

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

    Volume (Year): 45 (1998)
    Issue (Month): 3 (September)
    Pages: 522-553

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    Handle: RePEc:pal:imfstp:v:45:y:1998:i:3:p:522-553

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    Cited by:
    1. Jongwanich, Juthathip & Kohpaiboon, Archanun, 2008. "Private Investment: Trends and Determinants in Thailand," World Development, Elsevier, vol. 36(10), pages 1709-1724, October.
    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.
    3. Gode, Constantino J., 2001. "Sovereign Debt and Uncertainty in the Mozambican Economy," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
    4. Farla, Kristine, 2013. "Determinants of firms' investment behaviour: A multilevel approach," MERIT Working Papers 055, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    5. Mark J. Koetse & Henri L.F. de Groot & Raymond J.G.M. Florax, 2006. "The Impact of Uncertainty on Investment: A Meta-Analysis," Tinbergen Institute Discussion Papers 06-060/3, Tinbergen Institute.
    6. Lensink, Robert & Steen, Paul van & Sterken, Elmer, 2000. "Is size important for the investment-uncertainty relationship? : an empirical analyses for Dutch firms," Research Report 00E03, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    7. Abdul-Haque & Shaoping, Wang, 2008. "Uncertainty and investment evidence from a panel of Chinese firms," Structural Change and Economic Dynamics, Elsevier, vol. 19(3), pages 237-248, September.
    8. Steve Bond & Stephen R. Bond & Adeel Malik, 2008. "Natural resources, export structure and investment," Economics Series Working Papers CSAE WPS/2008-20, University of Oxford, Department of Economics.
    9. Francis Teal & Måns Söderbom & Francis Teal, 2000. "Skills, investment and exports from manufacturing firms in Africa," Economics Series Working Papers WPS/2000-08, University of Oxford, Department of Economics.

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