Reviving Private Investment in Developing Countries, Volume 208

Reviving Private Investment in Developing Countries: Major Themes (A. Chhibber, M. Dailami, N. Shafik). How Private Investment Reacts to Changing Macroeconomic Conditions: The Case of Chile in the 1980's (A. Solimano). Government Policy and Private Investment Recovery in Colombia (M. Dailami). Private Investment and Public Policy: The Egyptian Case (N. Shafik). Does Devaluation Hurt Private Investment? The Indonesian Case (A. Chhibber, N. Shafik). Private Investment under Macroeconomic Adjustment in Morocco (K. Schmidt-Hebbel, T. Muller). Public Policy and Private Investment in Turkey (A. Chhibber, S. van Wijnbergen). Private Investment, Government Policy and Foreign Capital: A Study of the Zimbabwean Experience (M. Dailami, M. Walton). Adjustment, Investment and the Real Exchange Rate in Developing Countries (R. Faini, J. de Melo).

The aim of the research described in this volume is to examine the behavior of private domestic investment in a sample of seven developing economies: Chile, Colombia, Egypt, Indonesia, Morocco, Turkey, and Zimbabwe. The studies represent a first step toward understanding the investment process in developing countries and the scope for government policy to affect private capital formation. Such issues will become increasingly important in the future as more developing countries try to encourage private investment.

Four key issues emerge in the analysis of the determinants of private investment and its role in adjustment programs in developing countries. The first is the impact of changes in the exchange rate; the second major concern is the existence of crowding out of private activity as a result of government borrowing in domestic financial markets through interest rates or quantity rationing. A third and related issue is whether government spending, particularly that on investment, "crowds in" or "crowds out" private capital formation. Fourth, the effects of uncertainty are important in determining the response of private agents to changes in the incentive structure.