Adjustment Costs and Irreversibility as Determinants of Investment: Evidence from African Manufacturing : Contributions in Economic Analysis & Policy uses cookies, tags, and tracking settings to store information that help give you the very best browsing experience.
To understand more about cookies, tags, and tracking, see our Privacy Statement
I accept all cookies for the De Gruyter Online site

Jump to ContentJump to Main Navigation

The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Zulehner, Christine / Schirle, Tammy

IMPACT FACTOR 2014: 0.336
5-year IMPACT FACTOR: 0.848

SCImago Journal Rank (SJR) 2014: 0.633
Source Normalized Impact per Paper (SNIP) 2014: 0.606
Impact per Publication (IPP) 2014: 0.640


30,00 € / $42.00 / £23.00

Get Access to Full Text

Adjustment Costs and Irreversibility as Determinants of Investment: Evidence from African Manufacturing

Arne Bigsten1 / Paul Collier2 / Stefan Dercon3 / Marcel Fafchamps4 / Bernard Gauthier5 / Jan Willem Gunning6 / Remco Oostendorp7 / Catherine Pattillo8 / Måns Söderbom9 / Francis Teal10

1Göteborg University

2Oxford University

3Oxford University

4Oxford University

5HEC Montréal

6Free University, Amsterdam

7Free University, Amsterdam


9Oxford University

10Oxford University

Citation Information: Contributions in Economic Analysis & Policy. Volume 4, Issue 1, ISSN (Online) 1538-0645, DOI: 10.2202/1538-0645.1228, October 2005

Publication History

Published Online:


In this paper we investigate if the predictions of three different models of capital adjustment costs are consistent with the observed investment patterns among manufacturing firms in five African countries. We document a high frequency of zero investment episodes, which is consistent with both fixed adjustment costs and irreversibility and inconsistent with quadratic adjustment costs. We model the decision to invest using a dynamic discrete choice model and find evidence of irreversibility and not fixed costs. We finally model the investment rate as a function of the size of the capital disequilibrium. The results confirm that irreversibility is an important factor affecting the investment behaviour of African manufacturing firms. Some implications of this finding are discussed.

Keywords: investment; adjustment costs; irreversibility; hazard function; African manufacturing

Comments (0)

Please log in or register to comment.