Financial Restraints and Private Investment: Evidence from a Nonstationary Panel

12 Pages Posted: 30 Nov 2012

See all articles by Mauro Costantini

Mauro Costantini

ISAE, Istituto di Studi e Analisi Economica

Panicos Demetriades

University of Leicester - Department of Economics

Gregory James

De Montfort University

Kevin Lee

University of Leicester - Department of Economics

Date Written: January 2013

Abstract

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 Classification: O16, G18, G28

Suggested Citation

Costantini, Mauro and Demetriades, Panicos O. and James, Gregory and Lee, Kevin C., Financial Restraints and Private Investment: Evidence from a Nonstationary Panel (January 2013). Economic Inquiry, Vol. 51, Issue 1, pp. 248-259, 2013, Available at SSRN: https://ssrn.com/abstract=2182976 or http://dx.doi.org/10.1111/j.1465-7295.2011.00424.x

Mauro Costantini (Contact Author)

ISAE, Istituto di Studi e Analisi Economica ( email )

Piazza dell' Indipendenza 4
I-00185
Italy

Panicos O. Demetriades

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom
+ 44 116 252 2835 (Phone)
+ 44 116 252 2908 (Fax)

HOME PAGE: http://www.le.ac.uk/economics/staff/pd28.html

Gregory James

De Montfort University ( email )

The Gateway
Leicester, LE1 9BH
United Kingdom

Kevin C. Lee

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom
0116 252 5348 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1
Abstract Views
328
PlumX Metrics