Inactions and Spikes of Investment in Ethiopian Manufacturing Firms: Empirical Evidence on Irreversibility and Non-convexities
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.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (31) (0)43 3883875
Fax: (31) (0)43 3216518
Web page: http://www.merit.unu.edu/
More information through EDIRC
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.:
- Caballero, Ricardo J., 1999.
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 12, pages 813-862
- Russell W. Cooper & John C. Haltiwanger, 2000.
"On the Nature of Capital Adjustment Costs,"
NBER Working Papers
7925, National Bureau of Economic Research, Inc.
- 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.
- 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.
- Rothschild, Michael, 1971. "On the Cost of Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 605-22, November.
- 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.
- 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.
- World Bank, 2004. "World Development Indicators 2004," World Bank Publications, The World Bank, number 13890.
- Giuseppe Bertola & Ricardo J. Caballero, 1991.
"Irreversibility and Aggregate Investment,"
NBER Working Papers
3865, National Bureau of Economic Research, Inc.
- 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.
- 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.
- Øivind Anti Nilsen & Fabio Schiantarelli, 2003. "Zeros and Lumps in Investment: Empirical Evidence on Irreversibilities and Nonconvexities," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1021-1037, November.
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 references are entirely missing, you can add them using this form.