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Adjustment Costs, Irreversibility and Investment Patterns in African Manufacturing
Author:
Mr. Arne L Bigsten
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Series:
IMF Working Papers
Volume/Issue:
Volume 1999: Issue 099
Language:
English
Publication Date:
01 Jul 1999
DOI:
https://doi.org/10.5089/9781451852257.001
ISBN:
9781451852257
ISSN:
1018-5941
Pages:
53
Keywords:
WP; adjustment cost; cost function; investment rate; African manufacturing; investment; adjustment costs; duration dependence; nonparametric methods; unobserved heterogeneity; firm investment model; investment spike; mandated investment; investment behavior; Stocks; Manufacturing; Agroindustries; Employment; Logit models; Sub-Saharan Africa
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper examines dynamic patterns of investment in Cameroon, Ghana, Kenya, Zambia and Zimbabwe, assessing the consistency of those patterns with different adjustment cost structures. Using survey data on manufactured firms, we document the importance of zero investment episodes and lumpy investment. The proportion of firms experiencing large investment spikes is significant in explaining aggregate manufacturing investment. Taken together, evidence from descriptive statistics, average investment regressions modeling the response to capital imbalance, and transition data analysis indicate that irreversibility is an important factor considered by firms when making investment plans. The picture is not unanimous however, and some explanations for the mixed results are proposed.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund