Uncertainty, Instability, and Irreversible Investment: Theory, Evidence, and Lessons for Africa

Abstract

No AccessPolicy Research Working Papers25 Jun 2013Uncertainty, Instability, and Irreversible Investment: Theory, Evidence, and Lessons for AfricaAuthors/Editors: Luis ServénLuis Servénhttps://doi.org/10.1596/1813-9450-1722SectionsAboutPDF (0.2 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract:February 1997 Instability and uncertainty are important factors in Africa's poor investment record over the past two decades. A recent (but rapidly growing) literature has focused on how uncertainty and instability affect the adoption of fixed investment projects. That literature shows that if fixed investment projects are costly or impossible to reverse, uncertainty can become a powerful deterrent to investment. Serven reviews the literature on irreversible investment to identify the implications for macroeconomic policy and to gauge the practical importance, especially for Sub-Saharan Africa, of the link between uncertainty and investment. He presents empirical evidence on the negative association between investment performance and measures of instability, using cross-section time-series data. That evidence suggests that instability and uncertainty are important factors in Africa's poor investment record over the last two decades. This paper - a product of the Macroeconomics and Growth Division, Policy Research Department - is part of a larger effort in the department to understand the determinants of private investment. Previous bookNext book FiguresReferencesRecommendedDetailsCited ByPublic Debt and Economic Growth in ItalySSRN Electronic JournalInformation Content of Interest Rates Spreads in NigeriaSSRN Electronic JournalThe Impact of Uncertainty on Investment: A Meta-AnalysisSSRN Electronic JournalPublic Debt in Developing Countries: Has the Market-Based Model Worked?SSRN Electronic JournalThe Transmission Mechanism to BarterSSRN Electronic JournalCurrency Basket Regimes for Southeast Asia: The Worst System with the Exception of All OthersSSRN Electronic Journal View Published: November 1999 Copyright & Permissions Related RegionsAfricaRelated CountriesCzech RepublicTimor-LesteRelated TopicsSocial Protections and LaborMacroeconomics and Economic GrowthPrivate Sector DevelopmentFinance and Financial Sector Development KeywordsASSETCAPITALCOST OF CAPITALDISCOUNTED VALUEDISINVESTMENTEXPECTED VALUEFIXED CAPITALFIXED COSTSINTERESTINVESTMENT DECISIONSINVESTMENT POLICIESINVESTMENT PROJECTSINVESTMENT STRATEGYINVESTMENT THEORYINVESTMENTSINVESTORSPRIVATE INVESTMENTPROFITABILITYREAL RATE OF RETURNVALUE PDF DownloadLoading ...

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