Factors affecting investment in developing countries: a panel data study

Article

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.
Article Title

Factors affecting investment in developing countries: a panel data study

ERA Journal ID18404
Article CategoryArticle
AuthorsSalahuddin, Mohammad (Author) and Islam, Md. Rabiul (Author)
Journal TitleJournal of Developing Areas
Journal Citation42 (1), pp. 21-37
Number of Pages17
Year2008
PublisherTennessee State University
Place of PublicationNashville, TN. United States
ISSN0022-037X
1548-2278
Web Address (URL)http://www.jstor.org/stable/40376191
Abstract

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.

Keywordsinvestment; panel data; developing countries
ANZSRC Field of Research 2020350208. Investment and risk management
380204. Panel data analysis
380302. Macroeconomic theory
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Byline AffiliationsSoutheast University, Bangladesh
Monash University
Institution of OriginUniversity of Southern Queensland
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