Fixed Investment and Capital Flows PDF Download

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Fixed Investment and Capital Flows

Fixed Investment and Capital Flows PDF Author: Mr.Peter B. Clark
Publisher: International Monetary Fund
ISBN: 1451937393
Category : Business & Economics
Languages : en
Pages : 29

Book Description
This paper draws a link between international capital flows and the real options approach to investment by extending a model of real estate investment. It explains gradual investment, investment booms, and investment during recessions and emphasizes sunk costs, uncertainty, and the value of waiting. The optimal waiting time increases as foreign borrowing becomes more expensive because higher returns are required to cover the sunk costs of investing. The lower the initial level of profitability, the more likely investment will be sequential; conversely, a relatively high initial rate of return will be associated with simultaneous investment.
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