Publication Type

Journal Article

Version

publishedVersion

Publication Date

11-2019

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 investmentInvestment, lumpiness, Volatility

Discipline

Industrial Organization | Macroeconomics

Research Areas

Macroeconomics

Publication

European Economic Review

Volume

120

First Page

1

Last Page

23

ISSN

0014-2921

Identifier

10.1016/j.euroecorev.2019.103314

Publisher

Elsevier: 24 months

Copyright Owner and License

Publisher

Additional URL

https://doi.org/10.1016/j.euroecorev.2019.103314

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