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Determinants of private investment: a cross-regional empirical investigation

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  • Dhaneshwar Ghura
  • Barry Goodwin

Abstract

This study investigates the determinants of private investment in Asia, Sub-Saharan Africa (SSA), and Latin America with panel data for the period 1975-1992. Econometric tests indicated a preference for the random effects estimation procedure over other alternatives. The results, with pooled data for all the 31 countries in the sample, confirm some results found elsewhere in the empirical literature. Namely, private investment in developing countries is stimulated by real GDP growth, increases in government investment, improvements in financial intermediation, reductions in credit to the government, and declines in world interest rates. Another interesting result relates to the important role played by educational development in stimulating private investment. Nevertheless, statistically significant adverse effects of external debt on private investment found by other studies could not be confirmed by this study. In addition, the results for the full sample of countries are by no means common across the regions. While real GDP growth stimulated private investment in Asia and Latin America, its effect was not significant in SSA. Also, while government investment stimulated private investment in SSA, it had the opposite effect in Asia and Latin America. In addition, private investment was stimulated by increases in private sector credit in Asia and SSA, but not in Latin America. Also, increases in credit to the government had significant adverse effects on private investment in SSA and Latin America. Further, the adverse effects of external shocks were statistically significant only in SSA, a result that confirms the view that the region is vulnerable to these shocks.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 32 (2000)
Issue (Month): 14 ()
Pages: 1819-1829

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Handle: RePEc:taf:applec:v:32:y:2000:i:14:p:1819-1829

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Cited by:
  1. Ward Romp & Jakob de Haan, 2007. "Public Capital and Economic Growth: A Critical Survey," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 8(s1), pages 6-52, 04.
  2. Yongzheng Yang & Robert Powell & Sanjeev Gupta, 2005. "The Macroeconomic Challenges of Scaling Up Aid to Africa," IMF Working Papers 05/179, International Monetary Fund.
  3. Carlos Azzoni & Aquiles Kalatzis, 2010. "Incorporating demand-side aspects into regional policy: variations in the importance of private investment decision factors across regions," The Annals of Regional Science, Springer, vol. 44(1), pages 69-82, February.
  4. Olaf Unteroberdoerster & Roberto Pereira Guimarães, 2006. "What's Driving Private Investment in Malaysia? Aggregate Trends and Firm-Level Evidence," IMF Working Papers 06/190, International Monetary Fund.
  5. Zahir Shah & Qazi Masood Ahmed, 2003. "The Determinants of Foreign Direct Investment in Pakistan: an Empirical Investigation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 42(4), pages 697-714.
  6. repec:asi:ajoerj:2013:p:633-653 is not listed on IDEAS
  7. Stephen S. Everhart & Mariusz A. Sumlinski, 2001. "Trends in Private Investment in Developing Countries : Statistics for 1970-2000 and the Impact on Private Investment of Corruption and the Quality of Public Investment," World Bank Publications, The World Bank, number 13989, October.
  8. Imtiaz Ahmed & Abdul Qayyum, 2007. "Do Public Expenditure and Macroeconomic Uncertainty Matter to Private Investment? Evidence from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(2), pages 145-161.
  9. Ahmad, Imtiaz & Qayyum, Abdul, 2009. "Role of Public Expenditures and Macroeconomic Uncertainty in Determining Private Investment in Large Scale Manufacturing Sector of Pakistan," MPRA Paper 29268, University Library of Munich, Germany.
  10. Kirkpatrick, Colin & Parker, David & Zhang, Yin-Fang, 2004. "Foreign Direct Investment in Infrastructure in Developing Countries: Does Regulation Make a Difference?," Centre on Regulation and Competition (CRC) Working papers 30703, University of Manchester, Institute for Development Policy and Management (IDPM).
  11. Ahmad, Imtiaz & Qayyum, Abdul, 2008. "Effect of Government Spending and Macro-Economic Uncertainty on Private Investment in Services Sector: Evidence from Pakistan," MPRA Paper 11673, University Library of Munich, Germany.
  12. Agenor, Pierre-Richard, 2003. "The mini-integrated macroeconomic model for poverty analysis : a framework for analyzing the unemployment and poverty effects of fiscal and labor market reforms," Policy Research Working Paper Series 3067, The World Bank.
  13. Marianna Belloc & Pietro Vertova, 2004. "How Does Public Investment Affect Economic Growth in HIPC? An Empirical Assessment," Department of Economics University of Siena 416, Department of Economics, University of Siena.
  14. Sallahuddin Hassan & Zalila Othman & Mohd Zaini Abd Karim, 2011. "Private and Public Investment in Malaysia: A Panel Time-Series Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 1(4), pages 199-210.
  15. Agenor, Pierre-Richard & Nabli, Mustapha K. & Yousef, Tarik M., 2005. "Public infrastructure and private investment in the Middle East and North Africa," Policy Research Working Paper Series 3661, The World Bank.
  16. Bayraktar, Nihal & Fofack, Hippolyte, 2007. "Specification of investment functions in Sub-Saharan Africa," Policy Research Working Paper Series 4171, The World Bank.
  17. Joyce, Joseph P. & Nabar, Malhar, 2009. "Sudden stops, banking crises and investment collapses in emerging markets," Journal of Development Economics, Elsevier, vol. 90(2), pages 314-322, November.

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