Essays on investment, policy uncertainty and development: The case of Argentina and other sets of countries
This dissertation takes three diverse approaches to address what uniquely characterizes investment in developing countries. The first chapter constructs a simple investment model of a firm where one type of capital is irreversible. We consider an environment in which the investor has been making decisions under unstable policy regimes, and the uncertainty of this environment has made him skeptical regarding what future governments can offer. When a seemingly sustainable economic stabilization program is implemented, what type of factors will he consider in deciding whether to wait before investing? We show that he will only wait if the source of uncertainty is the lack of information about the government's intentions, and that information is substantially affects his production, given his technology and planning horizon. Furthermore, if he has the ability to learn, then a substantial amount of the uncertainty is mitigated. We then simulate the model using data from Argentina's manufacturing firms. We find that although policy uncertainty can reduce the amount of investment undertaken in Argentina, its most important effect is on the timing of that investment. The next chapter describes how a country that is heavily indebted tends to be more vulnerable to external shocks because government policy has less room to maneuver--since the authorities must levy taxes to pay back that debt. Not only does this affect private investment, but it also indirectly affects the country's income distribution through the workers firms forego hiring. The last chapter is a reexamination of the nexus between machinery investment and economic growth. Delong and Summers (1991) show that there is a strong nexus, and that this may be due to an externality embodied in machinery. Our analysis suggests that machinery investment, through its association with low prices, may be acting as a proxy for other forces, for example, a set of industrial policies that are independently affecting economic growth. We find that countries that produce machinery and equipment will generally have lower relative machinery prices due to declining average costs, which allows them to more easily promote exports. The unique growth experience of some East Asian countries is also considered.
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|Authors:||Mercer-Blackman, Valerie Anne|
|Type of publication:||Other|
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