Economic instability and aggregate investment
A recent literature suggests that because investment expenditures are irreversible and can be delayed, they may be highly sensitive to uncertainty. We briefly summarize the theory, stressing its empirical implications. We then use cross-section and time-series data for a set of developing and indust...
| Hoofdauteurs: | , |
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| Formaat: | Working Paper |
| Gepubliceerd in: |
MIT Center for Energy and Environmental Policy Research
2009
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| Online toegang: | http://hdl.handle.net/1721.1/50200 |
| _version_ | 1826216210719571968 |
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| author | Pindyck, Robert S. Solimano, Andrés |
| author2 | Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research. |
| author_facet | Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research. Pindyck, Robert S. Solimano, Andrés |
| author_sort | Pindyck, Robert S. |
| collection | MIT |
| description | A recent literature suggests that because investment expenditures are irreversible and can be delayed, they may be highly sensitive to uncertainty. We briefly summarize the theory, stressing its empirical implications. We then use cross-section and time-series data for a set of developing and industrialized countries to explore the relevance of the theory for aggregate investment. We find that the volatility of the marginal profitability of capital -- a summary measure of uncertainty -- affects investment as the theory suggests, but the size of the effect is moderate, and is greatest for developing countries. We also find that this volatility has little correlation with indicia of political instability used in recent studies of growth, as well as several indicia of economic instability. Only inflation is highly correlated with this volatility, and is also a robust explanator of investment. |
| first_indexed | 2024-09-23T16:44:04Z |
| format | Working Paper |
| id | mit-1721.1/50200 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T16:44:04Z |
| publishDate | 2009 |
| publisher | MIT Center for Energy and Environmental Policy Research |
| record_format | dspace |
| spelling | mit-1721.1/502002019-04-12T23:31:10Z Economic instability and aggregate investment Pindyck, Robert S. Solimano, Andrés Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research. A recent literature suggests that because investment expenditures are irreversible and can be delayed, they may be highly sensitive to uncertainty. We briefly summarize the theory, stressing its empirical implications. We then use cross-section and time-series data for a set of developing and industrialized countries to explore the relevance of the theory for aggregate investment. We find that the volatility of the marginal profitability of capital -- a summary measure of uncertainty -- affects investment as the theory suggests, but the size of the effect is moderate, and is greatest for developing countries. We also find that this volatility has little correlation with indicia of political instability used in recent studies of growth, as well as several indicia of economic instability. Only inflation is highly correlated with this volatility, and is also a robust explanator of investment. Supported by the MIT Center for Energy and Environmental Policy Researchn by the National Science Foundation. 2009-12-15T23:59:36Z 2009-12-15T23:59:36Z 1993 Working Paper 93003 http://hdl.handle.net/1721.1/50200 35719893 MIT-CEEPR (Series) ; 93-003WP. 48 p application/pdf MIT Center for Energy and Environmental Policy Research |
| spellingShingle | Pindyck, Robert S. Solimano, Andrés Economic instability and aggregate investment |
| title | Economic instability and aggregate investment |
| title_full | Economic instability and aggregate investment |
| title_fullStr | Economic instability and aggregate investment |
| title_full_unstemmed | Economic instability and aggregate investment |
| title_short | Economic instability and aggregate investment |
| title_sort | economic instability and aggregate investment |
| url | http://hdl.handle.net/1721.1/50200 |
| work_keys_str_mv | AT pindyckroberts economicinstabilityandaggregateinvestment AT solimanoandres economicinstabilityandaggregateinvestment |