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The End of Financial Repression? A Cross-Country Analysis of Investment

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Author Info
Panicos O. Demetriades ()
Gregory A. James
Kevin Lee

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Abstract

We estimate a model of investment under financial restrains due to Demetriades and Devereux (2000), using total and private aggregate investment data from 38 high income and low income countries during 1972-2002. Our main findings for the overall sample are that (i) the US real interest rate is a robust determinant of total investment, suggesting that US monetary policy may have unintended global consequences; (ii) a term proxying domestic financial restraints is found to have an insignificant impact both on total and private investment. These findings are, however, somewhat less conclusive when we examine low income countries on their own, where financial restraints are found to have a negative and marginally significant effect on total investment.

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File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp08-7.pdf
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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 08/7.

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Date of creation: Feb 2008
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Handle: RePEc:lec:leecon:08/7

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Related research
Keywords: Financial restraints; investment; dynamic panel data;

Find related papers by JEL classification:
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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References listed on IDEAS
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  1. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July. [Downloadable!] (restricted)
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  2. M. Hashem Pesaran & Ron Smith, 2006. "Macroeconometric Modelling With A Global Perspective," Manchester School, University of Manchester, vol. 74(s1), pages 24-49, 09. [Downloadable!] (restricted)
    Other versions:
  3. Arestis, Philip & Demetriades, Panicos O, 1997. "Financial Development and Economic Growth: Assessing the Evidence," Economic Journal, Royal Economic Society, vol. 107(442), pages 783-99, May. [Downloadable!] (restricted)
    Other versions:
  4. Singh, Ajit, 1997. "Financial Liberalisation, Stockmarkets and Economic Development," Economic Journal, Royal Economic Society, vol. 107(442), pages 771-82, May. [Downloadable!] (restricted)
    Other versions:
  5. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
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  8. Pradeep Agrawal, 2004. "Interest Rates and Investment in East Asia: An Empirical Evaluation of Various Financial Liberalisation Hypotheses," The Journal of Development Studies, Taylor and Francis Journals, vol. 40(3), pages 142-173, February. [Downloadable!] (restricted)
  9. Demetriades, Panicos O & Devereux, Michael P, 2000. "Investment and Financial Restraints: Theory and Evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 5(4), pages 285-96, October. [Downloadable!] (restricted)
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