Investment and development: a cross-sectional analysis

Abstract

The empirical analyses covered so far in this book have concentrated on time-series analyses of investment in the USA and UK. But what is the experience in other countries? Have less developed countries (LDCs) been investing more rapidly to compensate for relative capital scarcity? Or does the evidence suggest that LDC economies are stagnant in terms of investment activity? In this chapter the investment performance of a cross-section of countries is assessed. In particular, the evidence about convergence in investment rates will be assessed over a sample of countries. Conditional and absolute convergence models are explained and some of the theoretical concepts outlined in earlier chapters are used as conditioning variables to capture the different investment convergence patterns. The resulting convergence models are analyzed using 1988–98 data from 47 different countries. In addition, dummy variables are used to capture the differences in convergence rates for LDCs and developed countries (DCs). The evidence presented indicates that investment rates in developing countries have been converging more rapidly than investment rates in DCs.