Financial liberalisation and private investment: evidence from Turkey

The paper tests for shifts in aggregate private investment functions for Tu rkey as a consequence of financial liberalisation in the early 1980s. Resul ts for a neoclassical model in error correction form suggest that the short -run dynamics of investment were altered by financial liberalisation, with reduced sensitivity to the availability of credit, but with no evidence of increased sensitivity to the cost of capital. Estimation of an Euler equati on model indicates that credit constraints remained binding after liberalis ation. We interpret this as evidence of significant structural change to pr ivate investment functions after financial liberalisation, but with credit constraints continuing to operate. (C) 1998 Elsevier Science B.V. All right s reserved.