WPS A 13 POLICY RESEARCH WORKING PAPER 2913 Public Disclosure Authorized Financial Development and Dynamic Investment Behavior Public Disclosure Authorized Evidence from Panel Vector Autoregression Inessa Love Lea Zicchino Public Disclosure Authorized The World Bank Public Disclosure Authorized Development Research Group Finance October 2002 POLIcy RESEARCH WORKING PAPER 2913 Abstract Love and Zicchino apply vector autoregression to firm- availability of internal finance) that influence the level of level panel data from 36 countries to study the dynamic investment. The authors find that the impact of the relationship between firms' financial conditions and financial factors on investment, which they interpret as investment. They argue that by using orthogonalized evidence of financing constraints, is significantly larger in impulse-response functions they are able to separate the countries with less developed financial systems. The "fundamental factors" (such as marginal profitability of finding emphasizes the role of financial development in investment) from the "financial factors" (such as improving capital allocation and growth. This paper-a product of Finance, Development Research Group-is part of a larger effort in the group to study access to finance. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Kari Labrie, room MC3-456, telephone 202-473-1001, fax 202-522-1155, email address
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[email protected]. October 2002. (32 pages) The Policy Research Working Paper Series disseminates the findmygs of work mn progress to encouirage the excbange of ideas about development issues.