<Table 3 & 4 Here>
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Graph 1: Rate of return gap (Rgap) and financial assets to aggregate capital ratio (fk) (Medians)
Source: Author’s calculations.
Notes: Rgap is the difference between rate of return on fixed (rk) and financial assets (rf.) in percentage points.
Graph 2: Median operating profitability
.02 .03 .04 .05 .06 .07 .08 .09 .10
93 94 95 96 97 98 99 00 01
Argentina
.07 .08 .09 .10 .11 .12 .13 .14
91 92 93 94 95 96 97 98 99 00 01 02 03 Mexico
.00 .05 .10 .15 .20 .25 .30
93 94 95 96 97 98 99 00 01 02 03
Turkey
Source: Author’s calculations.
Notes: Operating profitability is defined as operating profits to net sales ratio.
Table 1: Effects of rate of return gap and risk on Ik
Ik-1 -0.277*** -0.267*** -0.32*** -0.303*** -0.28*** -0.206*** -0.203*** -0.283*** -0.303* -0.14*** -0.252*** -0.256*** -0.225*** -0.26*** -0.28***
(0.004) (0.006) (0.007) (0.004) (0.008) (0.002) (0.004) (0.026) (0.03) (0.003) (0.002) (0.001) (0.002) (0.001) (0.002) KO-1 -0.184*** -0.17*** -0.165*** -0.18*** -0.195*** -0.12*** -0.12*** -0.192*** -0.21* -0.132*** -0.24*** -0.24*** -0.204*** -0.22*** -0.22***
(0.004) (0.004) (0.004) (0.002) (0.001) (0.002) (0.002) (0.017) (0.014) (0.002) (0.002) (0.001) (0.002) (0.001) (0.002) Rgap-1 0.014*** 0.022*** 0.025*** 0.02*** 0.02*** 0.003*** 0.003*** 0.002*** 0.003* 0.001*** 0.001*** 0.001*** 0.001*** 0.001*** 0.001***
(0.001) (0.0001) (0.001) (0.0001) (0.001) 0.0001) (0.0002) (0.001) (0.001) (0.0001) (0.00001) (0.00001) (0.00001) (0.00001) (0.00001) RiskRer -1304*** -16.41*** -7.31***
(21.9) (0.082) (0.46)
RiskInf -24.23*** -0.48
(0.64) (0.003)
RiskInf-1 -0.0003
(0.001)
ICRG 0.83*** 1.44*** 0.18***
(0.004) (0.184) (0.002) Cr 0.99*** 4.93*** 0.552***
(0.02) (0.397) (0.01)
GDP 0.92*** 2.296***
(0.02) (0.01)
GDP-1 0.634***
(0.005)
Obs 726 1479 2830
(1) (2) (3) (4) (5) (1) (2) (3) (4) (5) (1) (2) (3) (4) (5)
Sargan 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.99 0.99 0.99 0.99 0.99
m1 0.03 0.04 0.06 0.06 0.04 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 m2 0.36 0.42 0.16 0.23 0.67 0.91 0.85 0.35 0.58 0.62 0.19 0.27 0.18 0.48 0.68
Argentina Mexico Turkey
Notes: Arellano-Bond dynamic panel-data estimation two-step GMM results (using Stata 9.2’s xtabond command) with robust standard errors in parenthesis. The year fixed effects are not reported.
(***), (**), (*) refer to significance at 1%, 5% and 10% level respectively. (-1) refers to lag-1. Ik is net fixed investment spending, KO is capital-output ratio in natural log, Rgap is rate of return gap (rk - rf), RiskRer and RiskInf are real exchange and inflation uncertainty measured by GARCH (1,1) method, ICRG is International country risk guide composite risk index in natural log transformed as described
in the data appendix. Cr is credit to private sector as a share of GDP (except for Argentina where it is measured as the growth rate of total real credit to the private sector). GDP is real GDP growth rate measured by log differences. Obs is number of observations. Sargan is the test of over-identifying restrictions, m1 and m2 are AR(1) and AR(2) tests. All test statistics are given by their p-values.
Table 2: Effects of rate of return gap and risk on FK (I
f/Ka)
Argentina Mexico Turkey
(1) (2) (3) (1) (2) (3) (1) (2) (3)
FK-1 0.727*** 0.707*** 0.703*** 0.93*** 0.943*** 0.941*** 0.89*** 0.88*** 0.89***
(0.01) (0.01) (0.007) (0.01) (0.012) (0.017) (0.003) (0.004) (0.003) FK-2 -0.255*** -0.248*** -0.257*** -0.445*** -0.444*** -0.449*** -0.33*** -0.325*** -0.326***
(0.012) (0.003) (0.008) (0.014) (0.012) (0.013) (0.002) (0.002) (0.002) Ka -0.1 -0.11*** -0.136*** 0.003 0.013 0.046** 0.12** 0.235*** 0.219***
(0.066) (0.047) (0.032) (0.025) (0.02) (0.019) (0.008) (0.013) (0.013) Rgap-1 -0.078*** -0.075*** -0.078*** -0.027*** -0.027*** -0.027*** -0.01*** -0.01*** -0.01***
(0.008) (0.003) (0.003) (0.002) (0.002) (0.002) (0.0001) (0.0002) (0.0002) RiskRer -1535.2*** 1.653*** -0.048***
(189) (0.455) (0.291)
RiskInf -12.27*** 0.049*** -0.365**
(1.386) (0.011) (0.012) ICRG 0.315*** -0.072 0.25***
(0.02) (0.024) (0.011)
Obs 733 1294 2532
Sargan 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 m1 0.00 0.01 0.01 0.00 0.00 0.00 0.00 0.00 0.00 m2 0.48 0.39 0.45 0.48 0.44 0.50 0.51 0.52 0.52
Notes: (-1) and (-2) refer to the first and second lags. FK is the financial assets to aggregate capital ratio in natural log (i.e. ln(If/Ka)it), Ka is the aggregate capital in natural log as in Equation (7), for other variables refer to Table 1. The specification for Mexico and Turkey include unreported lags of dependent variable in the order of four and three respectively. For sensitivity analysis we also tested the results using fixed effects method as well as without the lagged endogenous variable on the right hand side. The coefficients were similar to those reported.
Table 3: Correlation matrix
Argentina Ik If/Ka Rgap RiskRer RiskRer ICRGP KO
Ik 1
If/Ka 0.068 1
Rgap 0.087 0.169 1 RiskRer -0.135 -0.012 0.014 1
RiskInf -0.099 -0.010 -0.072 -0.183 1
ICRG 0.172 0.004 0.071 -0.162 -0.037 1
KO -0.141 -0.296 -0.115 0.005 -0.005 -0.0002 1 Mexico Ik If/Ka Rgap RiskRer RiskRer ICRGP KO
Ik 1
If/Ka -0.009 1
Rgap -0.070 -0.076 1
RiskRer -0.336 -0.003 0.076 1
RiskInf -0.344 -0.004 0.073 0.997 1
ICRG 0.186 -0.001 -0.040 -0.387 -0.403 1
KO -0.206 -0.273 0.101 0.093 0.099 0.024 1 Turkey Ik If/Ka Rgap RiskRer RiskRer ICRGP KO
Ik 1
If/Ka 0.017 1
Rgap 0.054 0.170 1 RiskRer -0.116 -0.008 -0.038 1
RiskInf 0.113 -0.039 -0.037 -0.543 1
ICRG 0.125 0.054 0.073 0.116 -0.370 1
KO -0.128 -0.313 -0.116 0.049 0.045 -0.111 1
Table 4: Summary statistics
Argentina Ik If/Ka Rgap RiskRer RiskInf ICRG KO Mean -0.030 0.164 -0.16 0.00005 0.035 0.914 2.374 Median -0.007 0.073 -0.032 0.00004 0.036 0.920 1.594 Maximum 2.120 0.942 7.647 0.00013 0.036 1.144 30.810 Minimum -3.961 0.0002 -12.124 0.00004 0.033 0.619 0.003 Std. Dev. 0.312 0.203 1.016 0.00002 0.001 0.145 2.710 Mexico Ik If/Ka Rgap RiskRer RiskInf ICRG KO Mean 0.012 0.143 0.349 0.002 0.058 0.863 1.963 Median -0.001 0.080 0.08 0.001 0.013 0.867 1.568 Maximum 2.150 0.921 22.443 0.031 1.065 1.040 16.561 Minimum -1.289 0.001 -10.948 0.001 0.002 0.645 0.032 Std. Dev. 0.238 0.174 1.785 0.006 0.198 0.102 1.602 Turkey Ik If/Ka Rgap RiskRer RiskRer ICRG KO Mean 0.013 0.217 -0.959 0.002 5.768 0.324 0.614 Median -0.001 0.148 -0.018 0.001 5.871 0.301 0.423 Maximum 2.176 0.948 53.525 0.012 5.877 0.682 8.545 Minimum -2.554 0.0002 -92.167 0.0002 4.357 -0.050 0.005 Std. Dev. 0.255 0.203 6.737 0.003 0.342 0.197 0.674
Notes: For variable definitions refer to Notes of Table 1 and 2. Unlike in regression estimations, all variables are at levels without natural logs.