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Is Investment Time Irreversible? Some Empirical Evidence for Disaggregated UK Manufacturing Data
[journal article]
Abstract It has long been suggested that investment may be time irreversible, and consideration of the option value of waiting to invest has aroused renewed interest in this issue. This paper tests for time irreversibility in UK investment according to disaggregation by type of investment expenditure and acr... view more
It has long been suggested that investment may be time irreversible, and consideration of the option value of waiting to invest has aroused renewed interest in this issue. This paper tests for time irreversibility in UK investment according to disaggregation by type of investment expenditure and across manufacturing sector groupings. The test results reported indicate that the irreversibility of investment patterns varies not only from industry to industry but also according to the type of capital being purchased, with significant time irreversibility detected in gross fixed capital formation and aggregate vehicles expenditure, and industrial sector groupings comprising fuels & oil refining, engineering & vehicles, and textiles & leather. However, only in the first and last of these series is time irreversibility attributable to non-linearities in the underlying data generating process, and consistent with threshold effects which may be associated with (S,s) type models of investment dynamics.... view less
Document language
English
Publication Year
2006
Page/Pages
p. 2265-2275
Journal
Applied Economics, 38 (2006) 19
DOI
https://doi.org/10.1080/00036840500427551
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)