## Investment, Uncertainty, and Irreversibility in Ghana

_IMF Working Papers, December 1, 1997_

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## Bibliographic details
- Authors: Catherine A Pattillo
- Published: December 1, 1997
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451858303.001

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### Research question and data
- Panel data on Ghanaian manufacturing firms are used to test predictions from models of irreversible investment under uncertainty.
- Information on the entrepreneur’s subjective probability distribution over future demand for the firm’s products is used to construct the expected variance of demand, which is used as a measure of uncertainty.
- Sample and publication details:
  - Pages: 37
  - Volume: 1997
  - Issue: 169
  - Series: Working Paper No. 1997/169
  - DOI: https://doi.org/10.5089/9781451858303.001
  - Stock No: WPIEA1691997
  - ISBN: 9781451858303
  - ISSN: 1018-5941
  - Author: Catherine A Pattillo
  - Date: December 1, 1997

### Key empirical findings
- Firms wait to invest until the marginal revenue product of capital reaches a firm-specific hurdle level.
- Higher uncertainty raises the hurdle level that triggers investment.
- Uncertainty has a negative effect on investment levels that is greater for firms with more irreversible investment.
- Expected variance of demand (constructed from entrepreneurs’ subjective probability distributions) is used as the primary measure of uncertainty.

### Methods and technical approach
- Use of firm-level panel data from Ghanaian manufacturing firms.
- Construction of an uncertainty variable from entrepreneurs’ subjective probability distributions over future demand.
- Empirical testing of predictions from irreversible investment models, including analysis of investment triggers/hurdle levels.
- Probit models and other econometric analyses are referenced in Subjects/Keywords.

### Subjects and keywords (as provided)
- Subjects: Capital adequacy requirements, Econometric analysis, Economic sectors, Financial institutions, Financial regulation and supervision, Manufacturing, National accounts, Private investment, Probit models, Stocks
- Keywords: Capital adequacy requirements, capital stock, cost of capital, firm investment model, firm owner, Ghana, hurdle level, investment, investment trigger, irreversible, Manufacturing, Private investment, Probit models, Stocks, uncertainty, uncertainty variable, WP

### Publication and access notes
- Also published in Staff Papers, Vol. 45, No. 3, September 1998.
- Available via the IMF eLibrary (formats and download options listed on the original page).

*Investment, Uncertainty, and Irreversibility in Ghana — Catherine A Pattillo, December 1, 1997 (IMF Working Paper No. 1997/169; DOI: https://doi.org/10.5089/9781451858303.001).*

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