IMF Working Papers

Adjustment Costs, Irreversibility and Investment Patterns in African Manufacturing

By Arne L Bigsten

July 1, 1999

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Arne L Bigsten. Adjustment Costs, Irreversibility and Investment Patterns in African Manufacturing, (USA: International Monetary Fund, 1999) accessed November 8, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Agroindustries, Econometric analysis, Economic sectors, Employment, Financial institutions, Labor, Logit models, Manufacturing, Stocks

Keywords: Adjustment cost, Adjustment costs, African manufacturing, Agroindustries, Cost function, Duration dependence, Employment, Firm investment model, Investment, Investment behavior, Investment rate, Investment spike, Logit models, Mandated investment, Manufacturing, Nonparametric methods, Stocks, Sub-Saharan Africa, Unobserved heterogeneity, WP

Publication Details

  • Pages:

    53

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1999/099

  • Stock No:

    WPIEA0991999

  • ISBN:

    9781451852257

  • ISSN:

    1018-5941

Notes

This paper was written by multiple authors (12).

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