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Private investment and financial development in a globalized world

Abstract

Using recently developed panel data techniques on data for 43 developing countries over the period 1970-98, this paper provides an exhaustive analysis of causality between aggregate private investment and financial development. GMM estimation on averaged data, and a common factor approach on annual data allowing for global interdependence and heterogeneity across countries suggest positive causal effects going in both directions. The finding has rich implications for the development of financial markets and the conduct of macroeconomic policies in developing countries in an integrated global economy.

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File URL: http://hdl.handle.net/10.1007/s00181-010-0394-3
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Article provided by Springer in its journal Empirical Economics.

Volume (Year): 41 (2011)
Issue (Month): 1 (August)
Pages: 43-56

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Handle: RePEc:spr:empeco:v:41:y:2011:i:1:p:43-56
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Keywords: Private investment; Financial development; Global interdependence; Common factor analysis; O16; E22; F3;

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Find related papers by JEL classification:
  • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
  • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
  • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
  • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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