Investment and Sources of Investment Finance in Developing Countries

GEP Research Paper No. 2007/16

33 Pages Posted: 31 Mar 2007

See all articles by Holger Görg

Holger Görg

University of Kiel; Kiel Institute for the World Economy

Oliver Morrissey

University of Nottingham - Development Economics

Manop Udomkerdmongkol

University of Nottingham - School of Economics

Date Written: 2007

Abstract

This paper uses annual aggregate data for 36 low or middle income countries covering the period 1995-2001 to test the responsiveness of investment to the sources of finance under (un)favourable regimes for investment. Two sources of private investment finance are considered: private investment and FDI inflows. We use four governance measures (voice and accountability, regulatory quality, political stability and control of corruption) to distinguish between 'market-friendly' (favourable) and 'market-unfriendly' (unfavourable) regimes. The results suggest that private investment has a greater effect on total investment than FDI in unfavourable regimes whereas both are of similar importance in favourable regimes. Finally, as would be anticipated, total investment levels are higher under favourable regimes.

Keywords: Foreign direct investment, Private investment, Institutions, Developing countries

JEL Classification: E20, F21

Suggested Citation

Gorg, Holger and Morrissey, Oliver and Udomkerdmongkol, Manop, Investment and Sources of Investment Finance in Developing Countries (2007). GEP Research Paper No. 2007/16, Available at SSRN: https://ssrn.com/abstract=975915 or http://dx.doi.org/10.2139/ssrn.975915

Holger Gorg

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

Oliver Morrissey

University of Nottingham - Development Economics ( email )

University Park
Nottingham, NG8 1BB
United Kingdom
+44 (0)115 9515475 (Phone)
+44 (0)115 951 4159 (Fax)

Manop Udomkerdmongkol (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham NG7 2RD
United Kingdom

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