Financial restraints and private investment: evidence from a nonstationary panel
journal contributionposted on 25.07.2014, 10:28 authored by Mauro Costantini, Panicos Demetriades, Gregory James, Kevin C. Lee
We employ recently developed panel data methods to estimate a model of private investment under financial restraints for 20 developing countries using annual data for 1972-2000. We show that the qualitative nature of the results varies depending on whether we take into account cross-country effects. When we allow for cross-sectional dependence, investment displays more sensitivity to world capital market conditions and exchange rate uncertainty. A perhaps even more surprising result is the finding that countries that managed to suppress domestic real interest rates without generating high inflation enjoyed higher levels of private investment than those that would have been obtained under liberalized conditions.
This work was supported by the ESRC [grant numbers RES-156-25-0009 and PTA-026-27-1437].
- Business and Economics