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The dynamics of investment projects: evidence from Peru

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  • Rocío Gondo
  • Marco Vega

Abstract

We analyse the effect of commodity price cycles on firm investment decisions at the project level, by considering the decision to delay, cancel or complete a project as initially announced. In particular, we use logit and duration models of competing risks on a novel dataset of announced investment projects in Peru from different economic sectors. The empirical framework for the timing of investment is motivated by real option models for projects that take time to build, with commodity prices used as a proxy of expected future income and their volatility as a proxy for uncertainty. Our results suggest that both a reduction in commodity prices and an increase in volatility increase the probability to delay investment in the mining sector, with an amplification effect when both simultaneously occur. In other sectors, delays in implementation occur more often in periods of high volatility. Probability regressions under a competing risk framework suggest that higher commodity prices lead to a higher probability of completion in all sectors of the economy.

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  • Rocío Gondo & Marco Vega, 2017. "The dynamics of investment projects: evidence from Peru," BIS Working Papers 621, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:621
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    References listed on IDEAS

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    1. Bolton, Patrick & Wang, Neng & Yang, Jinqiang, 2019. "Investment under uncertainty with financial constraints," Journal of Economic Theory, Elsevier, vol. 184(C).
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    6. Marmer, Vadim & Slade, Margaret E., 2018. "Investment and uncertainty with time to build: Evidence from entry into U.S. copper mining," Journal of Economic Dynamics and Control, Elsevier, vol. 95(C), pages 233-254.
    7. Bar-Ilan, Avner & Strange, William C, 1996. "Investment Lags," American Economic Review, American Economic Association, vol. 86(3), pages 610-622, June.
    8. Sax, Christoph & Steiner, Peter, 2013. "Temporal Disaggregation of Time Series," MPRA Paper 53389, University Library of Munich, Germany.
    9. Serletis, Apostolos & Xu, Libo, 2016. "Volatility and a century of energy markets dynamics," Energy Economics, Elsevier, vol. 55(C), pages 1-9.
    10. Mendoza, Enrique G., 1997. "Terms-of-trade uncertainty and economic growth," Journal of Development Economics, Elsevier, vol. 54(2), pages 323-356, December.
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    Cited by:

    1. Schlepper, Kathi & Riordan, Ryan & Hofer, Heiko & Schrimpf, Andreas, 2017. "Scarcity effects of QE: A transaction-level analysis in the Bund market," Discussion Papers 06/2017, Deutsche Bundesbank.
    2. Mauricio Alvarado & Gabriel Rodríguez, 2024. "Time-Varying Effects of Financial Uncertainty Shocks on Macroeconomic Fluctuations in Peru," Documentos de Trabajo / Working Papers 2024-531, Departamento de Economía - Pontificia Universidad Católica del Perú.
    3. César Salinas Depaz & Wilder Pérez Condor & Ricardo Najarro Chuchón, 2019. "Determinantes de la Diversificación Exportadora: Enfoque Bayesiano," Revista de Análisis Económico y Financiero, Universidad de San Martín de Porres, vol. 1(02), pages 23-35.

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    More about this item

    Keywords

    investment projects; panel logit; competing risks;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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