Financial liberalization, private investment and portfolio choice: Financialization of real sectors in emerging markets
Using firm level panel data, we analyze the impacts of rates of return gap between financial and fixed investments under uncertainty on real investment performance in three emerging markets, Argentina, Mexico and Turkey. Employing a portfolio choice model to explain the low fixed investment rates in developing countries during the 1990s, we suggest that rather than investing in irreversible long-term fixed investments, firms may choose to invest in reversible short-term financial investments depending on respective rates of returns and the overall uncertainty in the economy. The empirical results show that increasing rates of return gap and uncertainty have an economically and statistically significant fixed investment reducing effect while the opposite is true with respect to financial investments.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Guncavdi, Oner & Bleaney, Michael & McKay, Andrew, 1998. "Financial liberalisation and private investment: evidence from Turkey," Journal of Development Economics, Elsevier, vol. 57(2), pages 443-455.
- Peter Montiel & Luis Servén, 2006.
"Macroeconomic Stability in Developing Countries: How Much Is Enough?,"
World Bank Research Observer,
World Bank Group, vol. 21(2), pages 151-178.
- Montiel, Peter & Serven, Luis, 2004. "Macroeconomic stability in developing countries - How much is enough?," Policy Research Working Paper Series 3456, The World Bank.
- Engelbert Stockhammer, 2004.
"Financialisation and the slowdown of accumulation,"
Cambridge Journal of Economics,
Oxford University Press, vol. 28(5), pages 719-741, September.
- Demetriades, Panicos O. & Hussein, Khaled A., 1996.
"Does financial development cause economic growth? Time-series evidence from 16 countries,"
Journal of Development Economics,
Elsevier, vol. 51(2), pages 387-411, December.
- Panicos O. Demetriades & Khaled A.Hussein, 1995. "Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries," Keele Department of Economics Discussion Papers (1995-2001) 95/13, Department of Economics, Keele University.
- Aizenman, Joshua & Marion, Nancy, 1999. "Volatility and Investment: Interpreting Evidence from Developing Countries," Economica, London School of Economics and Political Science, vol. 66(262), pages 157-79, May.
- Pindyck, Robert S. & Solimano, Andrés., 1993.
"Economic instability and aggregate investment,"
3552-93., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Pindyck, Robert S. & Solimano, Andres, 1993. "Economic instability and aggregate investment," Policy Research Working Paper Series 1148, The World Bank.
- Robert S. Pindyck & Andres Solimano, 1993. "Economic Instability and Aggregate Investment," NBER Working Papers 4380, National Bureau of Economic Research, Inc.
- Alberto Gabriele & Korkut Baratav & Ashok Parikh, 2000. "Instability and Volatility of Capital Flows to Developing Countries," The World Economy, Wiley Blackwell, vol. 23(8), pages 1031-1056, 08.
- Garey Ramey & Valerie A. Ramey, 1994.
"Cross-Country Evidence on the Link Between Volatility and Growth,"
NBER Working Papers
4959, National Bureau of Economic Research, Inc.
- Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-51, December.
- B. Gerard Dages & Linda S. Goldberg & Daniel Kinney, 2000.
"Foreign and domestic bank participation in emerging markets: lessons from Mexico and Argentina,"
Economic Policy Review,
Federal Reserve Bank of New York, issue Sep, pages 17-36.
- Linda Goldberg & B. Gerard Dages & Daniel Kinney, 2000. "Foreign and Domestic Bank Participation in Emerging Markets: Lessons from Mexico and Argentina," NBER Working Papers 7714, National Bureau of Economic Research, Inc.
- Andrew B. Abel & Olivier H. Summers, 1986.
"Investment and Sales; Some Empirical Evidence,"
428, Massachusetts Institute of Technology (MIT), Department of Economics.
- Driver, Ciaran & Moreton, David, 1991. "The Influence of Uncertainty on UK Manufacturing Investment," Economic Journal, Royal Economic Society, vol. 101(409), pages 1452-59, November.
- Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
- Tornell, Aaron, 1990. "Real vs. financial investment can Tobin taxes eliminate the irreversibility distortion?," Journal of Development Economics, Elsevier, vol. 32(2), pages 419-444, April.
- Diego Comin & Sunil Mulani, 2006. "Diverging Trends in Aggregate and Firm Volatility," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 374-383, May.
- Le, Quan Vu & Zak, Paul J., 2006. "Political risk and capital flight," Journal of International Money and Finance, Elsevier, vol. 25(2), pages 308-329, March.
- James Crotty, 2005. "The Neoliberal Paradox: The Impact of Destructive Product Market Competition and Impatient Finance on Nonfinancial Corporations in the Neoliberal Era," Research Briefs rb2003-5, Political Economy Research Institute, University of Massachusetts at Amherst.
- Frenkel, Roberto & Ros, Jaime, 2006. "Unemployment and the real exchange rate in Latin America," World Development, Elsevier, vol. 34(4), pages 631-646, April.
- Grier, Robin & Grier, Kevin B., 2006. "On the real effects of inflation and inflation uncertainty in Mexico," Journal of Development Economics, Elsevier, vol. 80(2), pages 478-500, August.
When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:88:y:2009:i:2:p:314-324. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.