TY  - JOUR
AU  - Pindyck,Robert S.
AU  - Solimano,Andres
TI  - Economic Instability and Aggregate Investment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4380
PY  - 1993
Y2  - June 1993
UR  - http://www.nber.org/papers/w4380
L1  - http://www.nber.org/papers/w4380.pdf
N1  - Author contact info:
Robert S. Pindyck
MIT Sloan School of Management
100 Main Street, E62-522
Cambridge, MA  02142
Tel: 617/253-6641
Fax: 617/258-6855
E-Mail: RPINDYCK@MIT.EDU

Andres Solimano
E-Mail: asolimano@eclac.cl
M1  - published as Robert S. Pindyck, Andrés Solimano. "Economic Instability and Aggregate Investment," in Olivier Jean Blanchard and Stanley Fischer, editors, "NBER Macroeconomics Annual 1993, Volume 8" MIT Press (1993)

AB  - 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
ER  -