Economic Instability and Aggregate Investment / Robert S. Pindyck, Andres Solimano.

Format:

Book

Author/Creator:

Pindyck, Robert S.

Contributor:

National Bureau of Economic Research.

Solimano, Andres.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4380.

NBER working paper series no. w4380

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1993.

Summary:

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

Notes:

Print version record

June 1993.