The end of financial repression? A cross-country analysis of investment

We estimate a model of investment under nancial restrains due to Demetriades and Devereux (2000), using total and private aggregate investment data from 38 high income and low income countries during 1972-2002. Our main ndings for the overall sample are that (i) the US real interest rate is a robust determinant of total investment, suggesting that US monetary policy may have unintended global consequences; (ii) a term proxying domestic nancial restraints is found to have an insigni cant impact both on total and private investment. These ndings are, however, somewhat less con- clusive when we examine low income countries on their own, where fnancial restraints are found to have a negative and marginally signi cant e¤ect on total investment.