The Influence of Uncertainty on UK Manufacturing Investment

Financial liberalization, private investment and portfolio choice: Financialization of real sectors in emerging markets

“…In both developed and developing countries, uncertainty and volatility in key macro and micro prices (including real GDP growth, real exchange rate, inflation, etc.) are found to have economically and statistically significant investment and growth reducing effects (Driver and Moreton, 1991;Federer, 1993;Pindyck and Solimano, 1993;Ramey and Ramey, 1995;Serven, 1998;Aizenman and Marion, 1999;Grier and Grier, 2006). 5 In 2005 37% of total interest income of private commercial banks in Turkey came from public sector securities (TBB).…”

Uncertainty and Private Investment Decision in Malaysia

“…The sign of the coefficients for uncertainty in demand is consistent but the size of the estimated coefficient is different from other studies such as Hakim (2008) and Ang (2010) who estimated demand uncertainty to be -0.003 and -0.10 respectively for Malaysia. Aysan et al (2009) and Driver and Moreton (1991) also found that the estimated coefficient for demand uncertainty to be relatively small, -0.02 and -0.08 respectively. Note: ^CV = conditional variance and UV = unconditional variance.…”

The Impact of Market Structure and Irreversibility on Investment under Uncertainty: An Empirical Analysis

“…In the same way, Tobin's q model of investment is not an option here, and the reason is twofold: from a theoretical point of view it assumes perfect competition and constant returns, therefore it eliminates any role for real options from the outset; and from an empirical point of view it would be unfeasible to collect meaningful data for the construction of q (like data on the replacement 15 An Error Correction Model (ECM) for investment was used for the first time by Bean (1981) for UK aggregate data. Driver and Moreton (1992) used the ECM and a flexible accelerator for a study of investment under uncertainty at the industry level. Complete irreversibility means that the capital stock cannot be adjusted downwards.…”

“…30 In addition, a quadratic term in sales growth is included to test for the presence of non-linearity in the response of investment to demand shocks. 31 In this way we can test for heterogeneous and 29 Driver and Moreton (1992) include industry-specific capacity utilisation in a flexible accelerator model using survey data. I also calculated industry-specific measures of output gap using the Hodrick-Prescott filter on output series, but they performed worse than the aggregate capacity utilisation, therefore the results are not reported.…”

“…So the standard error from the residuals of the forecasting equation (13) However, one drawback to this measure of uncertainty is that it is backward-looking instead of forward-looking as the theory assumes. It is possible to overcome this problem typically using survey data about future expectations of business performance with respect to production, market prices, etc., as done for example in Guiso and Parigi (1999) using a survey of the Bank of Italy, or Driver and Moreton (1992) using the CBI annual survey. But also this proxy of uncertainty, although forward-looking, is not immune from critics, for example about the fact that survey data contain only qualitative information on the forecasted performance 41 , and this implies some degree of subjective discretion on how to translate this information in a quantitative measure of uncertainty; moreover not all firms on the market are obliged to respond to the survey, leaving out generally the smaller firms which can, in the aggregate, contribute to a great deal of investment; and finally it is not always guaranteed that the person involved in filling in the questionnaire is the one who has decision power inside the company, and therefore might not possess all the necessary information about the future strategies of the firm, its intended investment plans or production possibilities.…”