Explaining Recent Investment Weakness: Causes and Implications

This article investigates the drivers of investment growth in emerging market and developing economies with a focus on the most recent slowdown over the 2010–2015 period. Using panel regression techniques, we find that the recent investment slowdown in emerging market and developing economies is associated with a range of obstacles: weak economic activity, negative terms-of-trade shocks, declining foreign direct investment inflows, elevated private debt burdens, and heightened political risk. This stands in contrast with advanced economies, where weak economic activity is the most important factor. We briefly discuss policy implications of our findings.