Determinants of private investment in developing countries

This paper examines a modified version of the flexible accelerator theory of investment with particular reference to developing countries. The empirical results for five countries tend to confirm that government investment, the change in bank credit to the private sector and capital inflow to the private sector play important roles in determining private investment. The contributory effect and the crowding‐out effect of government investment are assessed within the context of a recursive model. Notes International Monetary Fund, Washington, D.C. The views expressed in this article represent the opinions of the authors and should not be interpreted as official Fund views.