Determinants of private investment: a cross-regional empirical investigation

This study investigates the determinants of private investment in Asia, Sub -Saharan Africa (SSA), and Latin America with panel data for the period 197 5-1992. Econometric tests indicated a preference for the random effects est imation procedure over other alternatives. The results, with pooled data fo r all the 31 countries in the sample, confirm some results found elsewhere in the empirical literature. Namely, private investment in developing count ries is stimulated by real GDP growth, increases in government investment, improvements in financial intermediation, reductions in credit to the gover nment, and declines in world interest rates. Another interesting result rel ates to the important role played by educational development in stimulating private investment. Nevertheless, statistically significant adverse effect s of external debt on private investment found by other studies could not b e confirmed by this study. In addition, the results for the full sample of countries are by no means common across the regions. While real GDP growth stimulated private investment in Asia and Latin America, its effect was not significant in SSA. Also, while government investment stimulated private i nvestment in SSA, it had the opposite effect in Asia and Latin America. In addition, private investment was stimulated by increases in private sector credit in Asia and SSA, but not in Latin America. Also, increases in credit to the government had significant adverse effects on private investment in SSA and Latin America. Further, the adverse effects of external shocks wer e statistically significant only in SSA, a result that confirms the view th at the region is vulnerable to these shocks.