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Title: Investment decisions in manufacturing: Assessing the effects of real oil prices and their uncertainty
Authors: Drakos, K
Konstantinou, P
Keywords: Investment;Real oil prices;Plant;Real options;Uncertainty
Issue Date: 2012
Publisher: Brunel University
Citation: Economics and Finance Working Paper, Brunel University, 12-14, Sep 2012
Abstract: We investigate the effects of real oil prices and their uncertainty on the investment decision. Making use of plant-level data, we estimate dynamic, discrete choice models that allow modeling investment inaction, under different assumptions related to initial conditions and unobserved heterogeneity. We find that increases in real oil price changes and in real oil price uncertainty significantly reduce the likelihood of investment action – in line with the predictions of irreversible investment theory. We also document that the investment decisions exhibit strong pure state dependence and are also significantly affected by initial conditions.
Appears in Collections:Economics and Finance
Dept of Economics and Finance Research Papers

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