Investment and financial restraints: theory and evidence

Devereux, Michael and Demetriades, Panicos (2000) Investment and financial restraints: theory and evidence. International Journal of Finance and Economics, 5 (4). pp. 285-296.


This paper examines investment decisions in an economy with two financial markets: an official market, which is subject to rationing due to an interest rate ceiling, and an unrestricted market, with a higher interest rate. In this context, the long-run equilibrium aggregate capital stock is unambiguously higher than in the absence of the interest rate ceiling, even though its relationship with the ceiling is non-monotonic. Empirical results using aggregate panel data from 52 developing countries for the period 1974–1988 provide support for the model, particularly in economies that have some access to international capital markets.

Item Type: Article
Keywords: economic growth; financial restraints; investment
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 01 Dec 2011 16:07
Last Modified: 02 Oct 2018 12:56

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