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Uncertainty, depreciation and industry growth

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  • Samaniego, Roberto M.
  • Sun, Juliana Y.

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.

Suggested Citation

  • Samaniego, Roberto M. & Sun, Juliana Y., 2019. "Uncertainty, depreciation and industry growth," European Economic Review, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:eecrev:v:120:y:2019:i:c:s0014292119301667
    DOI: 10.1016/j.euroecorev.2019.103314
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    References listed on IDEAS

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    3. Zhang, Li & Hu, Shiwei, 2023. "Foreign uncertainty and domestic exporter dynamics," International Review of Financial Analysis, Elsevier, vol. 87(C).

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    More about this item

    Keywords

    Uncertainty; Depreciation; Irreversible investment; Investment lumpiness; Volatility;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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