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Investment and Uncertainty: A Theory‐based Empirical Approach *
Author(s) -
Carlsson Mikael
Publication year - 2007
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2007.00464.x
Subject(s) - novelty , economics , investment (military) , econometrics , work (physics) , capital (architecture) , outcome (game theory) , capital investment , empirical evidence , microeconomics , finance , mechanical engineering , philosophy , theology , archaeology , epistemology , politics , political science , law , history , engineering
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 run 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.