Working Paper Series, Department of Economics, Uppsala University
No 2004:17:
Investment and Uncertainty: A Theory-Based Empirical Approach
Mikael Carlsson
Abstract: This paper provides empirical evidence on the dynamic
effects of uncertainty on firm-level capital accumulation. A novelty in
this paper is that the firm-level uncertainty indicator is motivated and
derived from a theoretical model, the neoclassical investment model with
time to build. This model also serves as the base for the empirical work,
where an error-correction approach is employed. I find a negative effect of
uncertainty on capital accumulation, both in the short and the long run.
This outcome cannot be explained by the model alone. Instead, the results
suggest that the predominant mechanism at work stems from irreversibility
constraints.
Keywords: Investment; Uncertainty; Dynamic Panel Data Models; (follow links to similar papers)
JEL-Codes: C33; D21; D80; E22; (follow links to similar papers)
27 pages, October 6, 2004
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