Investment in Emerging Markets We Are Not in Kansas Anymore…Or Are We?

Nicolas Magud and Sebastian Sosa

No 2015/077, IMF Working Papers from International Monetary Fund

Abstract: We document that (i) although private investment growth in emerging markets has decelerated in recent years, it came down from cyclical highs and remains close to pre-crisis trends; and (ii) investment-to-output ratios generally remain close to or above historical averages. We show that investment is positively related to expect future profitability, cash flows and debt flows, and negatively associated with leverage. Critically, it is also positively related to (country-specific) commodity export prices and capital inflows. Lower commodity export prices and expected profitability, a moderation in capital inflows, and increased leverage account for the bulk of the recent investment deceleration.

Keywords: WP; cash flow; capital expenditure; commodity export price; Investment; emerging markets; financial constraints; commodity prices; capital inflows; EM firm; cost of capital; investment decision; mid-sized firm; study emerging market company; financial constraint; Private investment; Currencies; Export prices; Asia and Pacific (search for similar items in EconPapers)
Pages: 31
Date: 2015-04-03
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Citations: View citations in EconPapers (15)

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