Private Investment, Portfolio Choice and Financialization of Real Sectors in Emerging Markets

Firat Demir

MPRA Paper from University Library of Munich, Germany

Abstract: Using micro level panel data, we analyze the impacts of rates of return gap between fixed and financial investments under uncertainty on real investment performance in three emerging markets, Argentina, Mexico and Turkey. Employing a portfolio choice model to explain the low fixed investment rates in developing countries during the 1990s, we suggest that rather than investing on risky and irreversible long term fixed investment projects, firms may choose to invest on reversible short term financial investments depending on respective rates of returns and uncertainty in the economy. The empirical results show that increasing rates of return gap and uncertainty have an economically and statistically significant fixed investment reducing effects in all three countries while the opposite is true with respect to financial investments.

Keywords: Private Investment; Portfolio Choice; Uncertainty; Financialization (search for similar items in EconPapers)
JEL-codes: C33 D21 E22 G11 O16 (search for similar items in EconPapers)
Date: 2007, Revised 2007-07
New Economics Papers: this item is included in nep-cwa, nep-mac and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://mpra.ub.uni-muenchen.de/8167/1/MPRA_paper_8167.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:3835

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