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Empirical investment equations in developing countries

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Author Info
Rama, Martin
Abstract

Since the debt crisis, there has been increasing interest in the determinants of investment in developing countries. There is plentiful literature on the topic for industrial economies but existing studies on developing countries are scattered and few. The author examined those studies with the aim of answering two questions: Are the variables that influence investment decisions the same in developing as in industrial countries, or should other factors be considered because the macroeconomic setting is different? And what can be learned from the applied research that has been done on the subject? This paper presents an integrative analytical framework, including different empirical equations, that depend on the assumptions made about the economies'key features. It classifies 25 empirical studies on investments in developing countries, classifying them according to their chosen specification and comparing their estimates. The author concludes that investment decisions in developing countries are not necessarily based on the same variables as in industrial countries. Analysts must consider such additional factors as financial repression, shortage of foreign exchange, lack of infrastructure, and significant economic instability.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 563.

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Date of creation: 31 Dec 1990
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Handle: RePEc:wbk:wbrwps:563

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Keywords: International Terrorism&Counterterrorism; Financial Intermediation; Trade and Regional Integration; Economic Theory&Research; Environmental Economics&Policies;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. George M. Von Furstenberg, 1977. "Corporate Investment: Does Market Valuation Matter in the Aggregate?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(1977-2), pages 347-408. [Downloadable!]
  2. Malkiel, Burton G & von Furstenberg, George M & Watson, Harry S, 1979. "Expectations, Tobin's q, and Industry Investment," Journal of Finance, American Finance Association, vol. 34(2), pages 549-61, May. [Downloadable!] (restricted)
  3. van Wijnbergen, S., 1982. "Stagflationary effects of monetary stabilization policies : A quantitative analysis of South Korea," Journal of Development Economics, Elsevier, vol. 10(2), pages 133-169, April. [Downloadable!] (restricted)
  4. Schiantarelli, F. & Georgoutsos, D., 1990. "Monopolistic competition and the Q theory of investment," European Economic Review, Elsevier, vol. 34(5), pages 1061-1078, July. [Downloadable!] (restricted)
  5. Abel, Andrew B., 1980. "Empirical investment equations : An integrative framework," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 12(1), pages 39-91, January. [Downloadable!] (restricted)
  6. Bertola, Giuseppe, 1998. "Irreversible investment," Research in Economics, Elsevier, vol. 52(1), pages 3-37, March. [Downloadable!] (restricted)
  7. Olivier Jean Blanchard, 1988. "Unemployment: Getting the Questions Right--and Some of the Answers," Working papers 502, Massachusetts Institute of Technology (MIT), Department of Economics.
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  8. Fry, Maxwell J., 1980. "Saving, investment, growth and the cost of financial repression," World Development, Elsevier, vol. 8(4), pages 317-327, April. [Downloadable!] (restricted)
  9. Schramm, Richard, 1972. "Neoclassical Investment Models and French Private Manufacturing Investment," American Economic Review, American Economic Association, vol. 62(4), pages 553-63, September. [Downloadable!] (restricted)
  10. Nathaniel H. Leff & Kazuo Sato, 1988. "Estimating Investment And Savings Functions For Developing Countries, With An Application To Latin America," International Economic Journal, Korean International Economic Association, vol. 2(3), pages 1-17, October. [Downloadable!] (restricted)
  11. Licandro, Omar, 1990. "Uncertainty and TobinÕs Q in a Monopolistic Competition Framework," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1990003, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  12. Olivier J. Blanchard & Jeffrey Sachs, 1982. "Anticipations, Recessions and Policy: An Intertemporal Disequilibrium Model," NBER Working Papers 0971, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. de Melo, Jaime & Tybout, James, 1986. "The Effects of Financial Liberalization on Savings and Investment in Uruguay," Economic Development and Cultural Change, University of Chicago Press, vol. 34(3), pages 561-87, April.
  14. Heller, Peter S, 1975. "A Model of Public Fiscal Behavior in Developing Countries: Aid, Investment, and Taxation," American Economic Review, American Economic Association, vol. 65(3), pages 429-45, June. [Downloadable!] (restricted)
  15. Bilsborrow, Richard E, 1977. "The Determinants of Fixed Investment by Manufacturing Firms in a Developing Country," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(3), pages 697-717, October. [Downloadable!] (restricted)
  16. Gardner, Roy & Sheldon, Russell, 1975. "Financial Conditions and the Time Path of Equipment Expenditures," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 164-70, May. [Downloadable!] (restricted)
  17. Grossman, Herschel I, 1972. "A Choice-Theoretic Model of an Income-Investment Accelerator," American Economic Review, American Economic Association, vol. 62(4), pages 630-41, September. [Downloadable!] (restricted)
  18. Behrman, Jere R, 1972. "Sectoral Investment Determination in a Developing Economy," American Economic Review, American Economic Association, vol. 62(5), pages 825-41, December. [Downloadable!] (restricted)
  19. Sneessens, Henri R., 1987. "Investment and the inflation-unemployment tradeoff in a macroeconomic rationing model with monopolistic competition," European Economic Review, Elsevier, vol. 31(3), pages 781-808, April. [Downloadable!] (restricted)
  20. Dailami, Mansoor & Walton, Michael, 1989. "Private investment, government policy, and foreign capital in Zimbabwe," Policy Research Working Paper Series 248, The World Bank. [Downloadable!]
  21. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  22. Chow, Gregory C, 1985. "A Model of Chinese National Income Determination," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 782-92, August. [Downloadable!] (restricted)
  23. Lim, David, 1987. "Export Instability, Investment and Economic Growth in Developing Countries," Australian Economic Papers, Blackwell Publishing, vol. 26(49), pages 318-27, December.
  24. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Easterly, William & Schmidt-Hebbel, Klaus, 1991. "The macroeconomics of public sector deficits : a synthesis," Policy Research Working Paper Series 775, The World Bank. [Downloadable!]
  2. Ahmed Badawi, 2003. "Private capital formation and public investment in Sudan: testing the substitutability and complementarity hypotheses in a growth framework," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(6), pages 783-799. [Downloadable!]
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