The influence of uncertainty on investment in the UK: A macro or micro phenomenon?

While the theory examining the relationship between uncertainty and investm ent has suggested new research avenues, it has not had strong predictive po wer. Nevertheless, at the policy level the benefits for investment of a mor e stable economic climate are being emphasised. These considerations point to the need for empirical work. Accordingly, this paper draws on industry l evel panel data, obtained by marrying the UK Census of Production with the CBI Industrial Trends Survey, and applies dynamic panel data methods to dis tinguish between macro and micro sources of uncertainty and to consider the role of financial factors. It is found that both sources of uncertainty ex ert a considerable negative impact on investment, while financial factors m ay be important in some industries.