Advanced Search
MyIDEAS: Login

Investment Under Uncertainty and Economic Growth: A Quantitative Investigation

Contents:

Author Info

  • Michael Binder

    ()
    (University of Maryland)

Abstract

Recent empirical economic growth literature has made significant progress in quantifying the role of a variety of factors driving cross-country differences in long-run output levels and in characterizing the process of convergence of countries' output growth rates toward their steady-state values. However, relatively little is yet known about the quantitative role of households' and firms' uncertainty regarding their future economic environments in long-run economic development. This is so even though such uncertainty has been increasingly recognized in the consumption and investment literatures to be a key determinant for households' saving decisions as well as for firms' investment decisions. This paper aims to explore, for both time-series and cross-section dimensions, the role of uncertainty in economic growth within the context of an optimal growth model with firms' investment decisions modelled explicitly and investment being at least partially irreversible and returns uncertain. Using this framework, the paper studies (i) the fraction of cross-country differences in long-run capital-output ratios due to firms' uncertainty about the rates of return on their investment, and (ii) whether transitional dynamics in a stochastic optimal-growth model with rate-of-return uncertainty are prolonged enough to explain sustained cross-country differences in output growth rates. The paper also considers the ability of economic policy to foster economic growth and welfare through provision of stable environments for saving and capital-investment decisions.

Download Info

If 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.
File URL: http://www.inform.umd.edu/econ/mbinder/research/invgro.html
File Function: main text
Download Restriction: no

Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 1999 with number 921.

as in new window
Length:
Date of creation: 01 Mar 1999
Date of revision:
Handle: RePEc:sce:scecf9:921

Contact details of provider:
Postal: CEF99, Boston College, Department of Economics, Chestnut Hill MA 02467 USA
Fax: +1-617-552-2308
Web page: http://fmwww.bc.edu/CEF99/
More information through EDIRC

Related research

Keywords:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:sce:scecf9:921. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).

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.