The End of Financial Repression? A Cross-Country Analysis of Investment

We estimate a model of investment under financial restrains due to Demetriades and Devereux (2000), using total and private aggregate investment data from 38 high income and low income countries during 1972-2002. Our main findings for the overall sample are that (i) the US real interest rate is a robust determinant of total investment, suggesting that US monetary policy may have unintended global consequences; (ii) a term proxying domestic financial restraints is found to have an insignificant impact both on total and private investment. These findings are, however, somewhat less conclusive when we examine low income countries on their own, where financial restraints are found to have a negative and marginally significant effect on total investment.