Did the debt crisis cause the investment crisis? Further evidence

The purpose of this paper is to show empirically that the ‘debt crisis' of 1982, and its still lingering effects, played a major role in the dramatic downturn of domestic investment in most lesser developed countries (LDCs). The hypothesis of a nested model incorporating variables reflecting indebtedness could not be rejected for ten of thirteen Latin American countries sampled. In addition significant structural shifts were found in the investment equations during and after 1982, suggesting that the debt crisis also changed the sensitivity of investment to external and internal economic factors, besides lowering its average level.