Investment in Greek manufacturing under irreversibility and uncertainty: the message in used capital expenditures

Konstantinos Drakos and Eleftherios Goulas

Applied Economics, 2010, vol. 42, issue 14, 1797-1809

Abstract: This article contributes to the existing literature by showing that uncertainty produces a nonuniform impact to the extent that different types of capital goods exhibit heterogeneous irreversibility, which we define as asset-specific irreversibility. Hence, asset-specific irreversibility is responsible for asymmetries in responses across types of capital goods to uncertainty. We also show that for a given type of capital good, uncertainty produces a variety of responses across sectors, which we define sector-specific irreversibility. In other words, sectoral differences in terms of the ability to substitute a given type of capital with labour, introduce a second-order effect of uncertainty on investment.

Date: 2010
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DOI: 10.1080/00036840701736040

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