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Latin American Investment Perfomance During the 1980-2002 Period: A Panel Cointegration Approach

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  • Ramirez, M.D.

Abstract

This paper seeks to test empirically some of the major economic reasons for Latin America(s poor investment performance since the onset and aftermath of the debt crisis. In so doing, it attempts to uncover those economic relationships and policies that need to be promoted in order to raise and sustain the rate of private capital formation. The paper is organized as follows. Section I motivates the empirical model by focusing on the stylized facts regarding Latin America(s investment performance in comparison to selected East Asian countries. Section II presents a modified investment model that pools both cross-section and time-series data for nine major economies of Latin America over the 1980-2002 period. The information contained in the time series data is thus enhanced by the cross-sectional (country) data which makes it possible to reliably test whether the included variables are important determinants of real private capital formation in the region during the period under review. Section III presents the results for the pooled investment model, including recently developed panel unit root tests to the relevant variables to determine if they are stationary. It also applies a panel (and group) cointegration test developed by Pedroni [1999] to determine whether there is a stable long-term relationship among the relevant panel regressors of the modified pooled investment function. The last section summarizes the findings and offers some policy prescriptions for improving the investment climate in Latin America and the Caribbean.

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Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 6 (2006)
Issue (Month): 2 ()
Pages:

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Handle: RePEc:eaa:aeinde:v:6:y:2006:i:2_8

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  1. Fishlow, Albert, 1990. "The Latin American State," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 61-74, Summer.
  2. David A. Aschauer, 1989. "Public investment and productivity growth in the Group of Seven," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 17-25.
  3. Nader Nazmi & Miguel D. Ramirez, 1997. "Public And Private Investment And Economic Growth In Mexico," Contemporary Economic Policy, Western Economic Association International, vol. 15(1), pages 65-75, 01.
  4. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  5. Cardoso, Eliana, 1993. "Private Investment in Latin America," Economic Development and Cultural Change, University of Chicago Press, vol. 41(4), pages 833-48, July.
  6. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  7. Krugman, Paul & Taylor, Lance, 1978. "Contractionary effects of devaluation," Journal of International Economics, Elsevier, vol. 8(3), pages 445-456, August.
  8. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  9. Kaddour Hadri, 1999. "Testing The Null Hypothesis Of Stationarity Against The Alternative Of A Unit Root In Panel Data With Serially Correlated Errors," Research Papers 1999_05, University of Liverpool Management School.
  10. Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
  11. Pastor, Manuel Jr., 1989. "Current account deficits and debt accumulation in Latin America: Debate and evidence," Journal of Development Economics, Elsevier, vol. 31(1), pages 77-97, July.
  12. Antonio Estache, 1994. "World Development Report: Infrastructure for Development," ULB Institutional Repository 2013/44144, ULB -- Universite Libre de Bruxelles.
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Cited by:
  1. Christopher E.S. WARBURTON, 2012. "ISI and New Industrial Conditions in Latin America and Africa," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 12(2).

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