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Capital Market Imperfections and Financialization of Real Sectors in Emerging Markets: Private Investment and Cash Flow Relationship Revisited

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  • DemIr, FIrat

Abstract

Summary The paper analyzes the impacts of cash flow from multiple investments in real and financial sectors on the new fixed investment spending of real sector firms. The empirical results based on the Euler equation approach and semi-annual firm level data from two major emerging markets, Mexico and Turkey, suggest that profits and rates of returns from fixed and financial assets have differential effects on fixed investment spending of real sector firms. Accordingly, increasing availability and accessibility of alternative investment opportunities in financial markets can become instrumental in channeling real sector savings to short-term financial investments instead of long-term fixed capital formation and thus lead to deindustrialization.

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Bibliographic Info

Article provided by Elsevier in its journal World Development.

Volume (Year): 37 (2009)
Issue (Month): 5 (May)
Pages: 953-964

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Handle: RePEc:eee:wdevel:v:37:y:2009:i:5:p:953-964

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Web page: http://www.elsevier.com/locate/worlddev

Related research

Keywords: financial liberalization private investment financing constraints financialization Mexico Turkey;

References

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Citations

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Cited by:
  1. Reyes, Alvaro & Lensink, Robert & Kuyvenhoven, Arie & Moll, Henk, 2012. "Dynamics of Investment for Market-Oriented Farmers in Chile," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126218, International Association of Agricultural Economists.
  2. Demir, Firat, 2010. "Exchange Rate Volatility and Employment Growth in Developing Countries: Evidence from Turkey," MPRA Paper 24477, University Library of Munich, Germany.
  3. Eduardo Cavallo & Arturo Galindo & Alejandro Izquierdo & John Jairo Leon, 2010. "The Role of Relative Price Volatility in the Efficiency of Investment Allocation," Research Department Publications 4682, Inter-American Development Bank, Research Department.

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