Determinants of fixed investment: A study of Indian private corporate manufacturing sector
This paper analyses the determinants of fixed investment in the Indian Private Corporate Manufacturing sector for the period 1973-2002, using Annual Survey of Industries Data. It is argued that economic policy of a nation is crucial in determining the investment behaviour in developing countries rather than the traditional factors like output and profit. Against the background of the financial sector deregulation initiated in India since 1991, this study makes an attempt to analyse whether the traditional factors or the economic policy variables plays a major role in determining investment behaviour. A reduced form equation derived from the neoclassical investment theory is used for the empirical analysis. Financial Liberalisation Index is constructed for India for the analysis. The results show that, the traditional determinants like output and profit still plays a major role in determining corporate investment rather than the policy variables. Though aggregate financial liberalisation, and more prominently domestic financial liberalisation produced an environment conducive for investment, it could not succeed in creating a sustained increase in capital formation in the post reform period. In other words, firms consider the demand factor, internal liquidity position and past investment decisions etc as the major indicators for future investment. Only index shows strong positive association with corporate investment is index of money market liberalisation. It is also found that there is significant negative association between index of capital account liberalisation and corporate investment. The negative and significant relationship with index of capital account liberalisation and investment raises many concerns over the credibility of external (international) financial reforms.
|Date of creation:||Mar 2005|
|Contact details of provider:|| Postal: Peasanth Nagar, Trivandrum 695 011, Kerala|
Phone: +91 471 2448 881
Fax: +91 471 2447 137
Web page: http://www.cds.edu
More information through EDIRC
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.:
- Reinhart, Carmen & Khan, Mohsin, 1989.
"Private investment and economic growth in developing countries,"
13655, University Library of Munich, Germany.
- Khan, Mohsin S. & Reinhart, Carmen M., 1990. "Private investment and economic growth in developing countries," World Development, Elsevier, vol. 18(1), pages 19-27, January.
- Seghezza, Elena & Baldwin, Richard E., 2008.
"Testing for Trade-Induced Investment-Led Growth,"
Economia Internazionale / International Economics,
Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 61(2-3), pages 507-537.
- Richard E. Baldwin & Elena Seghezza, 1996. "Testing for Trade-Induced Investment-Led Growth," NBER Working Papers 5416, National Bureau of Economic Research, Inc.
- Baldwin, Richard & Seghezza, Elena, 1996. "Testing for Trade-induced Investment-led Growth," CEPR Discussion Papers 1331, C.E.P.R. Discussion Papers.
- Ashoka Mody & Abdul d Abiad, 2003.
"Financial Reform; What Shakes it? What Shapes it?,"
IMF Working Papers
03/70, International Monetary Fund.
- Jorgenson, Dale W, 1971. "Econometric Studies of Investment Behavior: A Survey," Journal of Economic Literature, American Economic Association, vol. 9(4), pages 1111-1147, December.
- Leonardo Leiderman & Carmen Reinhart & Guillermo Calvo, 1992.
"Capital Inflows and Real Exchange Rate Appreciation in Latin America; The Role of External Factors,"
IMF Working Papers
92/62, International Monetary Fund.
- Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
- Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany.
- Ettori, Francois, 1990. "The pervasive effects of high taxation of capital goods in India," Policy Research Working Paper Series 433, The World Bank.
- Engle, Robert & Granger, Clive, 2015.
"Co-integration and error correction: Representation, estimation, and testing,"
Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-276, March.
- Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
- Singh, Ajit, 1994.
"Corporate financial patterns in industrialising economies: a comparative international study,"
54936, University Library of Munich, Germany.
- Singh, A., 1995. "Corporate Financial Patterns in Industrializing Economies. A Coparative International Study," Papers 2, World Bank - International Finance Corporation.
- Dale Jorgenson, 1967. "The Theory of Investment Behavior," NBER Chapters, in: Determinants of Investment Behavior, pages 129-175 National Bureau of Economic Research, Inc.
- 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.
- Mario I. Blejer & Mohsin S. Khan, 1984. "Government Policy and Private Investment in Developing Countries (Politique des pouvoirs publics et investissement privÃ© dans les pays en dÃ©veloppement) (PolÃtica estatal e inversiÃ³n privada en lo," IMF Staff Papers, Palgrave Macmillan, vol. 31(2), pages 379-403, June.
- 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 561-587, April.
- Jaime de Melo & James Tybout, 2015. "The Effects of Financial Liberalization on Savings and Investment in Uruguay," World Scientific Book Chapters, in: Developing Countries in the World Economy, chapter 3, pages 55-81 World Scientific Publishing Co. Pte. Ltd..
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Jagdish N. Bhagwati & T. N. Srinivasan, 1975. "Foreign Trade Regimes and Economic Development: India," NBER Books, National Bureau of Economic Research, Inc, number bhag75-1, Enero.
When requesting a correction, please mention this item's handle: RePEc:ind:cdswpp:369. 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: (Shamprasad M. Pujar)
If references are entirely missing, you can add them using this form.