A tale of two regions: investment in Latin America and East Asia

This paper examines why the investment rates of Latin American countries have been so low, in comparison with those of the fast growing East Asian countries. First, the paper compare the private and public investment ratios of eight Latin American countries, and their likely determinants, with those of five dynamic Asian countries. Second, it estimates an econometric model for the ratio of private investment to GDP in Latin American and Asian countries, respectively. The econometric results and a casual examination of the data suggest that the causes for the poor performance of private investment in Latin America relative to Asia are: considerably slower economic growth; more stringent domestic credit constraints; the adverse impact of the debt crisis on Latin American investment, a factor which was absent in the Asian countries; an important fall in complementary public investment in Latin America, which did not take place in Asia; and a greater degree of macroeconomic and relative price instab