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The effect of uncertainty on UK investment authorisation: Homogenous vs. heterogeneous estimators

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Author Info

  • Ciaran Driver
  • Katsushi Imai
  • Paul Temple
  • Giovanni Urga

    ()

Abstract

This paper compares pooled and non-pooled models of UK capital investment using the Confederation of British Industry’s (CBI) Industrial Trends Survey, focusing on the impact of uncertainty. The uncertainty measure is based on the cross sectional dispersion of optimism about the future business conditions in the industry in which the firm operates. The panel data estimation shows that uncertainty has quantitatively important negative effects on investment. However, if we look at the estimation results at the industry level, we find a great diversity in both estimated elasticities and t-statistics, providing valuable information not available from the pooled model. Finally, we compare the forecast performances of the above models; this analysis confirms that pooled estimators are generally better than non-pooled estimators in terms of out-of-sample forecast performance, but the difference between the two is not very large. Copyright Springer-Verlag 2004

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File URL: http://hdl.handle.net/10.1007/s00181-003-0192-2
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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 29 (2004)
Issue (Month): 1 (January)
Pages: 115-128

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Handle: RePEc:spr:empeco:v:29:y:2004:i:1:p:115-128

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Related research

Keywords: Investment; uncertainty; panel data estimation; E22; C23;

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Cited by:
  1. Ciaran Driver & Paul Temple & Giovanni Urga, 2005. "Explaining the Diversity of Industry Investment Responses to Uncertainty Using Long Run Panel Survey Data," School of Economics Discussion Papers 0405, School of Economics, University of Surrey.
  2. Badi H. Baltagi, 2008. "Forecasting with panel data," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 27(2), pages 153-173.
  3. Kang, Wensheng & Lee, Kiseok & Ratti, Ronald A., 2013. "Economic Policy Uncertainty and Firm-Level Investment," MPRA Paper 51277, University Library of Munich, Germany.
  4. Bettina Becker & Stephen Hall, 2013. "Do R&D strategies in high-tech sectors differ from those in low-tech sectors? An alternative approach to testing the pooling assumption," Economic Change and Restructuring, Springer, vol. 46(2), pages 183-202, May.

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