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Financial Restraints And Private Investment: Evidence From A Nonstationary Panel

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  • MAURO COSTANTINI
  • PANICOS O. DEMETRIADES
  • GREGORY A. JAMES
  • KEVIN C. LEE

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.

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File URL: http://hdl.handle.net/10.1111/j.1465-7295.2011.00424.x
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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 51 (2013)
Issue (Month): 1 (01)
Pages: 248-259

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Handle: RePEc:bla:ecinqu:v:51:y:2013:i:1:p:248-259

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Cited by:
  1. Costantini, M. & Fragetta, M. & Melina, G., 2013. "Determinants of Sovereign Bond Yield Spreads in the EMU. An Optimal Currency Area Perspective," Working Papers 13/15, Department of Economics, City University London.
  2. Costantini, Mauro & Gutierrez, Luciano, 2013. "Capital mobility and global factor shocks," Economics Letters, Elsevier, vol. 120(3), pages 513-515.

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