The Influence of Uncertainty on Investment in the UK: A Macro or Micro Phenomenon?

Paul Temple, Giovanni Urga and Ciaran Driver

Scottish Journal of Political Economy, 2001, vol. 48, issue 4, 361-382

Abstract: While the theory examining the relationship between uncertainty and investment has suggested new research avenues, it has not had strong predictive power. Nevertheless, at the policy level the benefits for investment of a more stable economic climate are being emphasised. These considerations point to the need for empirical work. Accordingly, this paper draws on industry level panel data, obtained by marrying the UK Census of Production with the CBI Industrial Trends Survey, and applies dynamic panel data methods to distinguish between macro and micro sources of uncertainty and to consider the role of financial factors. It is found that both sources of uncertainty exert a considerable negative impact on investment, while financial factors may be important in some industries.

Date: 2001
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