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Investment Equations and Financial Restrictions at Firm Level: The Case of Uruguay

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  • Julio de Brun
  • Eduardo Barbieri
  • Nestor Gandelman

Abstract

Three alternative specifications of an investment equation have been tested using panel data of Uruguayan firms: a traditional accelerator model of investment, an error-correction version of the accelerator model and an Euler equation for the capital stock. These models of investment were used to test for the existence of financial constraints in the investment decision process. Our estimates confirm the existence of financial restrictions on investment decisions of Uruguayan firms in the period under consideration (1997-2000). We explored the effect on firms’ ability to finance investment of two attributes: size and foreign ownership. Regarding size, our results suggest that small firms face greater constraints in financing their desired levels of investment. We also explored whether foreign owned firms suffered less from financial restrictions than national firms. Our results leave the issue unresolved. Lastly, our estimates suggest a general increase in the severity of financial restrictions following the 1999-2000 crisis. In particular, smaller firms were most affected.

Suggested Citation

  • Julio de Brun & Eduardo Barbieri & Nestor Gandelman, 2002. "Investment Equations and Financial Restrictions at Firm Level: The Case of Uruguay," Research Department Publications 3155, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:3155
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    6. Haramillo, Fidel & Schiantarelli, Fabio & Weiss, Andrew, 1996. "Capital market imperfections before and after financial liberalization: An Euler equation approach to panel data for Ecuadorian firms," Journal of Development Economics, Elsevier, vol. 51(2), pages 367-386, December.
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    Cited by:

    1. Arturo Galindo & Fabio Schiantarelli, 2002. "Credit Constraints in Latin America: An Overview of the Micro Evidence," Research Department Publications 3165, Inter-American Development Bank, Research Department.
    2. Agustinus Prasetyantoko, 2006. "Debt Composition and Balance Sheet Effect of Currency Crisis in Indonesia," Post-Print halshs-00134223, HAL.
    3. Arturo Galindo & Fabio Schiantarelli, 2002. "Limitaciones crediticias en América Latina: panorámica general de los elementos de juicio al nivel micro," Research Department Publications 4306, Inter-American Development Bank, Research Department.
    4. Serafín Frache & Gabriel Katz, 2004. "Estimating a Risky Term Structure of Uruguayan Sovereign Bonds," Documentos de Trabajo (working papers) 0304, Department of Economics - dECON.
    5. Néstor Gandelman & Alejandro Rasteletti, 2012. "The Impact of Bank Credit on Employment Formality in Uruguay," IDB Publications (Working Papers) 3964, Inter-American Development Bank.
    6. Guariglia, Alessandra & Mateut, Simona, 2010. "Inventory investment, global engagement, and financial constraints in the UK: Evidence from micro data," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 239-250, March.
    7. Spiros Bougheas & Paul Mizen & Simone Silva, "undated". "The open economy balance sheet channel and the exporting decisions of firms: Evidence from the Brazilian crisis of 1999," Discussion Papers 11/15, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).

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