Three perspectives on real investments in the manufacturing industry An empirical approach

Abstract

This Ph.D. thesis discusses the real investment in the manufacturing industry in Norway and the firms’ decision-making-process from three different perspectives. I show, using a novel approach, that firms, and particularly small firms, in the manufacturing industry do, to a lesser degree, use standard methods to shed light on their investment decision. Analyzing a business survey with panel data methods, I find that it is access to credit and demand expectations that are the most critical factors in explaining changes in investment plans. Lastly, the last chapter of this thesis suggests a model for aggregate investments in the manufacturing industry can. Based on the findings of the first chapters of this thesis, I suggest a way to expand the classic investment Euler equation such that it includes financial conditions and the cost of external financing. The investment Euler equation is estimated empirically using standard time series methods, and the estimated equation can forecast the decline in investments during the financial crisis.