Investment in emerging market economies

Abstract

This article empirically models investment in emerging economies. Using dynamic panel estimation methods and quarterly data for 31 emerging economies for the period 1990:1–2008:3, we show that (i) the GDP and the cost of capital are the key fundamental determinants of investment; (ii) financial factors (such as equity prices, credit and lending rate) play a relevant role on the dynamics of investment, in particular, for Asian and Latin American countries; (iii) investment growth exhibits substantial persistence and (iv) crises episodes magnify the negative response of investment.