When in doubt

Murtaza Syed

Published on 1 February 2004

How does uncertainty affect business investment? Murtaza Syed reviews the economic theory underlying the presence (or absence) of this relationship.

How does uncertainty affect business investment? Murtaza Syed, of the Institute for Fiscal Studies and Nuffield College, Oxford, reviews the economic theory underlying the presence (or absence) of this relationship.

Recognising that investment is a key determinant of long run economic growth, the current Labour government regards stimulating business investment as one of its central objectives. It has identified the provision of ‘macroeconomic stability’ as an important means of encouraging higher levels of private sector investment. In this article, we will examine whether economic theory supports the view that uncertainty discourages investment.