An Econometric Analysis of Sectoral Financial and Expenditure Flows in LDCs: Evidence from Flow-of-Funds Data

The study is based on flow-of -funds annual panel data from 15 LDCs for varying periods that fall between 1970s and middle 1980s. It endeavors to identify the factors that determine the various components of capital accumulation account of the flow-of-funds data viz. Saving, investment and net lending (in relation to the GDP) of each of the household, business, private and the residual (including government) sectors as well as of the entire economy. The various determining factors tested for are nine viz: economc growth, real interest rate, domestic credit availability, real devaluation of the exchange rate, openness of the economy, population size, per capita income, central government revenue-GDP ratio and world economic growth. The objectives include determination of the magnitude and direction of the effects of each of these on the sectoral saving and investment ratios as well as on intersectoral financial flows. The tests are conducted within the framework of flow-of-funds modeling and we find that each of the factors have significant effects on, at least, some of the flow-of-funds variables and that, in most of the cases, the direction of the effects are in line with expectation.