Factors affecting investment in developing countries: a panel data study

Salahuddin, Mohammad and Islam, Md. Rabiul (2008) Factors affecting investment in developing countries: a panel data study. Journal of Developing Areas, 42 (1). pp. 21-37. ISSN 0022-037X


This paper investigates the gross investment behavior in a panel of 97 developing countries spanning a period between 1973 and 2002. Fixed Effect Model is employed to analyze data. Variance Inflation Factor (VIF) test is conducted to ensure that the data are free from multicollinearity. Also, Granger Causality test is conducted to see if reverse causality exists. 2-Step 1st Difference Generalized Method of Moments (GMM) dynamic panel estimator has been employed to offset unobserved heterogeneity and endogeneity of regressors. The results suggest that investment decisions still seem to be significantly affected by traditional
determinants such as growth, domestic savings, trade openness etc. The variable aid appeared to potentially affect investment which calls for developing country's measures to ensure proper utilization of it. However, we failed to highlight the effect of real interest rate and uncertainty on investment attributing the former to macroeconomic volatility and latter to lack of data on
corruption index.

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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: © 2008 Tennessee State University. Permanent restricted access to published version due to publisher copyright policy.
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 15 Jan 2015 23:49
Last Modified: 15 Jan 2015 23:49
Uncontrolled Keywords: investment; panel data; developing countries
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150205 Investment and Risk Management
14 Economics > 1403 Econometrics > 140304 Panel Data Analysis
14 Economics > 1401 Economic Theory > 140102 Macroeconomic Theory
Socio-Economic Objective: B Economic Development > 91 Economic Framework > 9101 Macroeconomics > 910109 Savings and Investments
URI: http://eprints.usq.edu.au/id/eprint/26557

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