IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Inactions and Spikes of Investment in Ethiopian Manufacturing Firms: Empirical Evidence on Irreversibility and Non-convexities

  • Gebreeyesus, Mulu

    ()

    (UNU-MERIT)

This paper provides empirical evidence on the effect of irreversibility and non-convexities in adjustment costs on firm investment decision based on 1996-2002 firm level data from the Ethiopian manufacturing. It relies on a rich census based panel data set that gives the advantage of disaggregating investment into different types of fixed assets. We document evidence of a large percentage of inaction intermitted with lumpy investment, which is consistent with irreversibility and fixed costs but not with the standard convex adjustment costs. The inaction is higher and investment lumpier for small firms. We complement the descriptive analysis with two econometric methods: a capital imbalance approach and a machine replacement model. With the capital imbalance approach we estimate the investment response of firms to their capital imbalance using a non-parametric Nadaraya-Watson kernel smoothing method. With the machinery replacement approach using a proportional hazard model that takes unobserved heterogeneity into account, we estimate the probability of an investment spike conditional on the length of the interval from the last investment spike.

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.merit.unu.edu/publications/wppdf/2009/wp2009-061.pdf
Download Restriction: no

Paper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 061.

as
in new window

Length:
Date of creation: 2009
Date of revision:
Handle: RePEc:unm:unumer:2009061
Contact details of provider: Postal: P.O. Box 616, 6200 MD Maastricht
Phone: (31) (0)43 3883875
Fax: (31) (0)43 3216518
Web page: http://www.merit.unu.edu/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Oivind Anti Nilsen & Fabio Schiantarelli, 1996. "Zeroes and Lumps in Investment: Empirical Evidence on Irreversibilities and Non-Convexities," Boston College Working Papers in Economics 337., Boston College Department of Economics, revised 01 Nov 2000.
  2. Russell W. Cooper & John C. Haltiwanger, 2006. "On the Nature of Capital Adjustment Costs," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 611-633.
  3. Caballero, Ricardo J., 1999. "Aggregate investment," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 12, pages 813-862 Elsevier.
  4. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
  5. Bertola, Guiseppe & Caballero, Ricardo J, 1994. "Irreversibility and Aggregate Investment," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 223-46, April.
  6. Rothschild, Michael, 1971. "On the Cost of Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 605-22, November.
  7. Ricardo J. Caballero & Eduardo M. R. A. Engel & John C. Haltiwanger, 1995. "Plant-Level Adjustment and Aggregate Investment Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 1-54.
  8. Austan Goolsbee & David B. Gross, 1997. "Estimating Adjustment Costs with Data on Heterogeneous Capital Goods," NBER Working Papers 6342, National Bureau of Economic Research, Inc.
  9. Abel, Andrew B & Eberly, Janice C, 1996. "Optimal Investment with Costly Reversibility," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 581-93, October.
  10. Rocío Sánchez-Mangas, 2001. "Estimation Of A Dynamic Discrete Choice Model Of Irreversible Investment," Statistics and Econometrics Working Papers ws015628, Universidad Carlos III, Departamento de Estadística y Econometría.
  11. World Bank, 2004. "World Development Indicators 2004," World Bank Publications, The World Bank, number 13890.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:unm:unumer:2009061. 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: (Ad Notten)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.