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Energy Price Uncertainty and Investment: Firm Level Evidence from Indian Manufacturing Sector

Author

Listed:
  • H. Rajesh Acharya

    (Department of Humanities, Social Sciences and Management, National Institute of Technology Karnataka (NITK), Surathkal, Karnataka, India,)

  • C. Anver Sadath

    (Department of Economics, Central University of Kerala, India.)

Abstract

Uncertainty whatsoever has undoubtedly been deemed to be malevolent to the interests of investors. Theories of partial irreversibility of investment argue that uncertainty at the micro level negatively impacts the firm’s investment and thereby, at least, slow the process of capital accumulation. Therefore, the present study, empirically analyzes how energy price uncertainty affects investment decisions of manufacturing firms in India. A variety of panel data models are estimated using generalized method of moments with data pertaining to Indian manufacturing firms over the period 1992-1993-2013- 2014. Results are consistent with irreversible investment literature on the supply side of production, which showsthat energy uncertainty has a negative effect on the capital accumulation in the manufacturing sector and this effect transpires in the form of firm’s inability to adjust its actual capital stock to match up to its potential desired capital stock as proposed by the investment theories.

Suggested Citation

  • H. Rajesh Acharya & C. Anver Sadath, 2016. "Energy Price Uncertainty and Investment: Firm Level Evidence from Indian Manufacturing Sector," International Journal of Energy Economics and Policy, Econjournals, vol. 6(3), pages 364-373.
  • Handle: RePEc:eco:journ2:2016-03-1
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    References listed on IDEAS

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    More about this item

    Keywords

    Energy Price Uncertainty; Irreversible Investment; Energy Intensity;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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