Premium
FINANCIAL RESTRAINTS AND PRIVATE INVESTMENT: EVIDENCE FROM A NONSTATIONARY PANEL
Author(s) -
COSTANTINI MAURO,
DEMETRIADES PANICOS O.,
JAMES GREGORY A.,
LEE KEVIN C.
Publication year - 2013
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2011.00424.x
Subject(s) - economics , investment (military) , inflation (cosmology) , panel data , monetary economics , exchange rate , finance , econometrics , physics , politics , theoretical physics , political science , law
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 . ( JEL O16, G18, G28)