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Investment under Demand Uncertainty and Capacity Constraints. An Empirical Application to Belgium

Author

Listed:
  • de la Croix, David

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

  • Licandro, Omar

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

This paper evaluates the relevance of q theories under stochastic demand and capacity constraints by estimating an investment function for the Belgian economy. Under these theoretical conditions, we find that the investment rate depends on average q and on the expectations about the degree of capacity utilisation. The dynamics of the empirical model is derived without using any " time to build " or " delivery lags " assumptions. Our estimation stresses how important are the expectations about the degree of capacity utilisation in explaining investment.

Suggested Citation

  • de la Croix, David & Licandro, Omar, 1990. "Investment under Demand Uncertainty and Capacity Constraints. An Empirical Application to Belgium," LIDAM Discussion Papers IRES 1990010, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:1990010
    as

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