PRIVATE INVESTMENT AND MACROECONOMIC ADJUSTMENT:A Survey

Abstract

This article reviews theories of investment behavior and examines empirical studies of investment in developing couintries. The emphasis is on understanding the interactions among macroeconomic policies, structural adjustment, and private investment. The article deals with the effect of exchange rate policy on investment, the relationship between public and private investment, the importance of market imperfections and financial constraints on capital formation, and the effect of economic instability on irreversible investment decisions. T he correction of external imbalances in many developing countries during the 1980s took the form of large cuts in investment rather than increases in domestic savings. This decline in investment, which mirrored the decline in the transfer of external resources after 1982, was especially sharp in the highly indebted1 countries and was accompanied by slowed growth in these and other developing countries. In addition, both public and private rates of investment fell, although the decline in private investment was more drastic. If this trend continues, it will slow potential growth in these economies and will reduce long-run levels of per capita consumption and income, endangering the sustainability of the adjustment effort. This reduction in investment seems to reflect several factors. First, the decline in the availability of foreign savings has not been matched by a

Is Government Expenditure Volatility Harmful for Growth? A Cross‐Country Analysis*

“…See, for example, Ramey and Ramey (1995), Aghion and Banerjee (2005) and Imbs (2006). 6 For example, Bernanke (1983), Pindyck (1991), Pindyck and Solimano (1993), Serven and Solimano (1992) and Blackburn and Varvarigos (2005) show that in models with investment irreversibility and financial frictions, higher uncertainty regarding investment prices will determine a lower level of investment and growth. Similarly, Furceri (2006) shows that in a model of embodied exogenous technological change, higher investment price uncertainty determines a reduction in the average rate of growth.…”

Modelling the Long Run Determinants of Domestic Private Investment in Nigeria

“…In this instance, investment decisions have two stages: first is the decision to expand the level of productive capacity, and second, is the decision about the capital intensity of the additional capacity (Serven and Solimano, 1992). The first decision depends on the expected degree of capacity utilisation in the economy, which provides an indicator of demand conditions, while the second decision depends on relative prices such as the cost of capital and labour.…”

“…The first decision depends on the expected degree of capacity utilisation in the economy, which provides an indicator of demand conditions, while the second decision depends on relative prices such as the cost of capital and labour. The investment decision takes place in a setting in which firms may be facing current and expected future sales constraints (Serven and Solimano, 1992). Therefore, investment depends both on profitability and on the prevailing sales constraints, which determine the rate of capacity utilisation (Serven and Solimano, 1992).…”

“…The investment decision takes place in a setting in which firms may be facing current and expected future sales constraints (Serven and Solimano, 1992). Therefore, investment depends both on profitability and on the prevailing sales constraints, which determine the rate of capacity utilisation (Serven and Solimano, 1992). Criticism of the models arises because the models are not clear on the role of cash flow.…”

Credit Management and Bad Debt In Nigeria Commercial Banks –Implication For development

“…Some empirical findings are inconsistent with the fact. (Green and Villanueva 1991, negative relationship between interest rate and investment, studies by others (Serven andSolimano 1993, Van wijubergen 1985) have shown that in repressed financial markets. Credit policy affects investment in a distorted manner.…”