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The Influence of Uncertainty on Investment in the UK: A Macro or Micro Phenomenon?

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  • Temple, Paul
  • Urga, Giovanni
  • Driver, Ciaran

Abstract

While the theory examining the relationship between uncertainty and investment has suggested new research avenues, it has not had strong predictive power. Nevertheless, at the policy level the benefits for investment of a more stable economic climate are being emphasised. These considerations point to the need for empirical work. Accordingly, this paper draws on industry level panel data, obtained by marrying the UK Census of Production with the CBI Industrial Trends Survey, and applies dynamic panel data methods to distinguish between macro and micro sources of uncertainty and to consider the role of financial factors. It is found that both sources of uncertainty exert a considerable negative impact on investment, while financial factors may be important in some industries. Copyright 2001 by Scottish Economic Society.

Suggested Citation

  • Temple, Paul & Urga, Giovanni & Driver, Ciaran, 2001. "The Influence of Uncertainty on Investment in the UK: A Macro or Micro Phenomenon?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(4), pages 361-382, September.
  • Handle: RePEc:bla:scotjp:v:48:y:2001:i:4:p:361-82
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    Citations

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    Cited by:

    1. Joseph P. Byrne & E. Philip Davis, 2005. "Investment and Uncertainty in the G7," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(1), pages 1-32, April.
    2. Mitchell, James & Mouratidis, Kostas & Weale, Martin, 2007. "Uncertainty in UK manufacturing: Evidence from qualitative survey data," Economics Letters, Elsevier, vol. 94(2), pages 245-252, February.
    3. Chirinko, Robert S. & Schaller, Huntley, 2009. "The irreversibility premium," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 390-408, April.
    4. Marina Riem, 2016. "Corporate investment decisions under political uncertainty," ifo Working Paper Series 221, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    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. Mohey-ud-din, Ghulam & Siddiqi, Muhammad Wasif, 2013. "GDP Fluctuations and Private Investment: A Macro Panel Analysis of Selected South Asian Countries," MPRA Paper 60231, University Library of Munich, Germany, revised 15 Jun 2014.
    7. Binding, Garret & Dibiasi, Andreas, 2017. "Exchange rate uncertainty and firm investment plans evidence from Swiss survey data," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 1-27.
    8. Driver, Ciaran & Guedes, Maria João Coelho, 2012. "Research and development, cash flow, agency and governance: UK large companies," Research Policy, Elsevier, vol. 41(9), pages 1565-1577.
    9. Kang, Wensheng & Lee, Kiseok & Ratti, Ronald A., 2014. "Economic policy uncertainty and firm-level investment," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 42-53.
    10. Mellati, Ali, 2008. "Uncertainty and investment in private sector: An analytical argument and a review of the economy of Iran," MPRA Paper 26655, University Library of Munich, Germany.
    11. Catherine Fuss & Philip Vermeulen, 2008. "Firms' investment decisions in response to demand and price uncertainty," Applied Economics, Taylor & Francis Journals, vol. 40(18), pages 2337-2351.

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