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Title: A critical appraisal of McKinnon's complementarity hypothesis: Does the real rate of return on money matter for investment in developing countries?
Authors: Moore, T
Keywords: McKinnon's complementarity hypotheses;Capital formation;Developing countries;Real deposit rates;Money;Credit
Issue Date: 2010
Publisher: Elsevier
Citation: World Development, 38(3), 260 - 269, 2010
Abstract: McKinnon’s [McKinnon, R. I. (1973). Moneyandcapitalineconomicdevelopment. Washington, DC: The Brookings Institution] complementarity hypothesis predicts that money and investment are complementary due to self-financed investment, so that a real deposit rate is the key determinant of capital formation for developing economies. This paper critically appraises this contention by conducting a vigorous empirical approach using panel data for 107 developing countries. The long-run and dynamic estimation results based on McKinnon’s theoretical model are supportive of the hypothesis. However, when the investment model is conditioned by factors such as financial development, different income levels across developing countries, external inflows, public finance, and trade constraints, the credibility of the hypothesis is undermined.
Description: This is the post-print version of the final paper published in World Development. The published article is available from the link below. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. Copyright @ 2009 Elsevier B.V.
ISSN: 0305-750X
Appears in Collections:Economics and Finance
Dept of Economics and Finance Research Papers

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