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What explains Latin America's poor investment performance during the 1980-2001 period?: a panel unit root analysis

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  • Miguel Ramirez

Abstract

This article analyses the theoretical and empirical links between key economic variables and private investment spending in Latin America during the 1980-2001 period. The Seemingly Unrelated Regression (SUR) estimates for the pooled investment model suggest that real (lagged) public investment, the output gap, lagged domestic credit to the private sector, and the national savings rate have a positive and significant effect on private capital formation, while the standard deviation of the real exchange rate index has a negative effect on private capital formation. A major contribution of the study is the application of recently developed panel unit roots test on the stacked residuals of the pooled regressions. The tests indicate that the included variables have a stable, non-spurious (cointegrated) relationship. All in all, the findings in this article make an important contribution to the ongoing debate about which policies need to be promoted to raise and sustain the rate of private capital formation - Latin America's future source of employment and income creation.

Suggested Citation

  • Miguel Ramirez, 2008. "What explains Latin America's poor investment performance during the 1980-2001 period?: a panel unit root analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(1), pages 1-15.
    • Handle: RePEc:taf:irapec:v:22:y:2008:i:1:p:1-15
    DOI: 10.1080/02692170701745861
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    References listed on IDEAS

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    1. MD. Ramirez, 2000. "Public capital formation and labor productivity growth in Chile," Contemporary Economic Policy, Western Economic Association International, vol. 18(2), pages 159-169, April.
    2. Nora Lustig, 2001. "Life Is Not Easy: Mexico's Quest for Stability and Growth," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 85-106, Winter.
    3. Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
    4. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    5. Cardoso, Eliana, 1993. "Private Investment in Latin America," Economic Development and Cultural Change, University of Chicago Press, vol. 41(4), pages 833-848, July.
    6. Dreger, C. & Reimers, H.E., 2005. "Health Care Expenditures in OECD Countries: A Panel Unit Root and Cointegration Analysis," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 2(2), pages 5-20.
    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.
    8. Miguel Ramirez, 2002. "Public capital formation and labor productivity growth in Mexico," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 30(4), pages 366-379, December.
    9. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    10. 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 631-652, Special I.
    11. Ibarra, David, 1996. "Mexico: the plan and the current situation," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    12. David A. Aschauer, 1989. "Back of the G-7 pack: public investment and productivity growth in the Group of Seven," Working Paper Series, Macroeconomic Issues 89-13, Federal Reserve Bank of Chicago.
    13. J. M. Albala-Bertrand & E. C. Mamatzakis, 2001. "Is public infrastructure productive? Evidence from Chile," Applied Economics Letters, Taylor & Francis Journals, vol. 8(3), pages 195-198.
    14. Nader Nazmi & Miguel D. Ramirez, 1997. "Public And Private Investment And Economic Growth In Mexico," Contemporary Economic Policy, Western Economic Association International, vol. 15(1), pages 65-75, January.
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    Cited by:

    1. Ebghaei, Felor, 2013. "مديريت عوامل موثر بر سرمايه گذاري بخش خصوصي در ايران
      [Management of Determinant Factors on Private Investment in Iran]      ," MPRA Paper 77908, University Library of Munich, Germany, revised Mar 2017.
    2. Carolina Troncoso Baltar & Celio Hiratuka & Gilberto Tadeu Lima, 2014. "Investment in the Brazilian manufacturing industry and the real exchange rate: An investigation using sectoral-level panel data," Competence Centre on Money, Trade, Finance and Development 1408, Hochschule fuer Technik und Wirtschaft, Berlin.
    3. Mark Setterfield, 2015. "Time variation in the size of the multiplier: a Kalecki-Harrod approach," Working Papers 1522, New School for Social Research, Department of Economics, revised Jan 2017.

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