THE DETERMINANTS OF INVESTMENT: PANEL DATA ANALYSIS OF G7 COUNTRIES

Abstract

Foreign direct investment has registered a renewed interest by changing global economic and political environment. One of the fundamental aims of economic policies is to increase capital accumulation in terms of investment that is necessary to maintain a desirable and sustainable growth rate in the developing and developed countries. The majority of empirical studies show that per capita GDP growth, external debt, foreign trade, capital flows, public sector borrowing requirements, and interest rate are the main determinants of investment. Therefore, the aim of this study is to investigate whether financial development has contributed to an increase in investment in G7 countries. To reach an empirical and firm conclusion, an investment function, including the traditional potential determinants along with financial development, is estimated by utilizing the developments in the panel data econometrics in terms of panel unit root tests and panel cointegration for the period 1994- 2010 in G7 countries.