Energy Price Uncertainty and Investment: Firm Level Evidence from Indian Manufacturing Sector

H. Rajesh Acharya and C. Anver Sadath
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H. Rajesh Acharya: Department of Humanities, Social Sciences and Management, National Institute of Technology Karnataka (NITK), Surathkal, Karnataka, India,
C. Anver Sadath: Department of Economics, Central University of Kerala, India.

International Journal of Energy Economics and Policy, 2016, vol. 6, issue 3, 364-373

Abstract: Uncertainty whatsoever has undoubtedly been deemed to be malevolent to the interests of investors. Theories of partial irreversibility of investment argue that uncertainty at the micro level negatively impacts the firm s investment and thereby, at least, slow the process of capital accumulation. Therefore, the present study, empirically analyzes how energy price uncertainty affects investment decisions of manufacturing firms in India. A variety of panel data models are estimated using generalized method of moments with data pertaining to Indian manufacturing firms over the period 1992-1993-2013- 2014. Results are consistent with irreversible investment literature on the supply side of production, which showsthat energy uncertainty has a negative effect on the capital accumulation in the manufacturing sector and this effect transpires in the form of firm s inability to adjust its actual capital stock to match up to its potential desired capital stock as proposed by the investment theories.

Keywords: Energy Price Uncertainty; Irreversible Investment; Energy Intensity (search for similar items in EconPapers)
JEL-codes: C23 D80 E20 Q41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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