Uncertainty, depreciation and industry growth

Roberto Samaniego () and Juliana Y. Sun

European Economic Review, 2019, vol. 120, issue C

Abstract: When investment is irreversible, firms invest only when the mismatch between their productivity and their capital stock is large. This suggests that two factors should be related to the frequency of mismatch: volatility and capital depreciation. A canonical model of industry dynamics with investment irreversibility displays slow growth in times of high uncertainty, and decline is particularly pronounced in industries where capital depreciation is rapid. A differences-in-differences regression using industry growth data from a large sample of countries supports this result.

Keywords: Uncertainty; Depreciation; Irreversible investment; Investment lumpiness; Volatility (search for similar items in EconPapers)
JEL-codes: D80 E22 E32 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:120:y:2019:i:c:s0014292119301667

DOI: 10.1016/j.euroecorev.2019.103314

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