Is the Investment-Uncertainty Relationship Nonlinear? An Empirical Analysis for the Netherlands

25 Pages Posted: 28 Apr 2005

See all articles by Hong Bo

Hong Bo

University of Groningen - Department of Economics

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance; Wageningen UR - Development Economics Group

Abstract

We examine the investment-uncertainty relationship for a panel of Dutch non-financial firms. The system generalized method of moments (GMM) estimates suggest that the effect of uncertainty on investment is nonlinear: for low levels of uncertainty an increase in uncertainty has a positive effect on investment, while for high levels of uncertainty an increase in uncertainty lowers investment. This result is in line with a number of theoretical studies, but has never been documented empirically.

Suggested Citation

Bo, Hong and Lensink, Robert, Is the Investment-Uncertainty Relationship Nonlinear? An Empirical Analysis for the Netherlands. Available at SSRN: https://ssrn.com/abstract=709747

Hong Bo (Contact Author)

University of Groningen - Department of Economics ( email )

P.O. Box 800
9700 AV Groningen
Netherlands
+31 50 3634538 (Phone)
+34 50 3637337 (Fax)

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Wageningen UR - Development Economics Group ( email )

Hollandseweg 1
WAGENINGEN, 6706 KN
Netherlands

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