Explaining the Diversity of Industry Investment Responses to Uncertainty Using Long Run Panel Survey Data

This paper presents an empirical study of the channels of influence from uncertainty to fixed investment suggested by real options theory. Using panel data from the Confederation of British Industry Industrial Trends Survey, the authors report OLS estimates of the impact of uncertainty on investment where the regressors are augmented by cross-sectional averages of the dependent variable and of the individual specific regressors, as recently suggested by Pesaran (2004).