Investment, Uncertainty, and Irreversibility in Ghana
Electronic Access:
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Summary:
Panel data on Ghanaian manufacturing firms are used to test predictions from models of irreversible investment under uncertainty. Information on the entrepreneur’s subjective probability distribution over future demand for the firm’s products is used to construct the expected variance of demand, which is used as a measure of uncertainty. Empirical results support the prediction that firms wait to invest until the marginal revenue product of capital reaches a firm-specific hurdle level. Moreover, higher uncertainty raises the hurdle level that triggers investment, and uncertainty has a negative effect on investment levels that is greater for firms with more irreversible investment.
Series:
Working Paper No. 1997/169
Subject:
Capital adequacy requirements Econometric analysis Economic sectors Financial institutions Financial regulation and supervision Manufacturing National accounts Private investment Probit models Stocks
Notes:
Also published in Staff Papers, Vol. 45, No. 3, September 1998.
English
Publication Date:
December 1, 1997
ISBN/ISSN:
9781451858303/1018-5941
Stock No:
WPIEA1691997
Pages:
37
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