Investment, Uncertainty, and Irreversibility in Ghana

37 Pages Posted: 15 Feb 2006

See all articles by Catherine A. Pattillo

Catherine A. Pattillo

International Monetary Fund (IMF) - Research Division

Date Written: December 1997

Abstract

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.

Keywords: investment, uncertainty, irreversible, Ghana

JEL Classification: D81, D92, C24

Suggested Citation

Pattillo, Catherine, Investment, Uncertainty, and Irreversibility in Ghana (December 1997). IMF Working Paper No. 97/169, Available at SSRN: https://ssrn.com/abstract=883055

Catherine Pattillo (Contact Author)

International Monetary Fund (IMF) - Research Division ( email )

700 19th Street NW
Washington, DC 20431
United States

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