{
  "title": "Commodity Blues: Corporate Investment in Latin America",
  "publication": "IMF Blog, May 12, 2015",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2015/05/12/commodity-blues-corporate-investment-in-latin-america",
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  "summary": "Author: Nicolás Magud",
  "sections": [
    {
      "heading": "Context and scope",
      "content": "- Author: Nicolás Magud\n- Date: May 12, 2015\n- Dataset and coverage:\n  - Firm-level data spanning 24 years and 38 countries, with a total of close to 500,000 company-year observations.\n- Focus: drivers of corporate investment in Latin America, with emphasis on commodity export prices and capital inflows."
    },
    {
      "heading": "Latin America’s investment position",
      "content": "- Investment-to-GDP:\n  - Has fallen about two percentage points from its 2008 peak.\n  - Stands at 19.6 percent, slightly above the historical average.\n  - Persistently below comparable values from other emerging market regions, posing a constraint on potential growth."
    },
    {
      "heading": "Micro-level determinants of corporate investment (empirical findings)",
      "content": "- Firm characteristics associated with higher investment:\n  - Expected profitability: firms expected to be more profitable tend to invest more.\n  - Internal cash flow: firms rely on internal cash flow to finance investment, indicating financial constraints.\n- Firm characteristics associated with lower investment:\n  - Higher existing debt burdens: firms with higher leverage tend to invest less.\n  - Net borrowing dynamics are linked to investment decisions (as included among firm-level regressors)."
    },
    {
      "heading": "Macro-level determinants of corporate investment (empirical findings)",
      "content": "- Commodity export prices:\n  - Stand out as a key factor affecting corporate investment across all sectors in the dataset (not only the narrowly defined commodity sector).\n  - A one standard deviation shock to commodity export prices (a change of over 10 percentage points) tends to increase the average firm’s investment-capital ratio by nearly 4 percentage points.\n- Capital inflows:\n  - Times of larger capital inflows coincide with higher corporate investment.\n  - Capital inflows help relax firms’ financial constraints, particularly for firms that produce nontradable goods."
    },
    {
      "heading": "Explaining the recent slowdown (since mid-2011)",
      "content": "- Private investment has been decelerating throughout emerging markets since mid-2011; Latin America is no exception.\n- The regression results imply the relationship between investment and its drivers has not materially changed since mid-2011.\n- Sharp moves in drivers since 2011 explain the investment slowdown.\n  - For Latin America, lower commodity export prices account for almost the entire decline in average investment-to-capital ratios.\n  - In other regions, additional factors—capital inflows, expected profitability, leverage, and financial constraints—have also contributed significantly."
    },
    {
      "heading": "Outlook and policy implications",
      "content": "- External environment risks:\n  - Commodity prices are generally expected to remain subdued, which is discouraging for investment prospects.\n  - Capital flows to emerging markets could moderate, particularly as U.S. monetary policy starts to normalize.\n  - Potential output projections for emerging economies have been revised downward, reducing firms’ expected profitability.\n- Policy recommendations to revive private investment:\n  - Address long-standing obstacles in Latin America, including:\n    - Low domestic saving rates.\n    - Weak educational outcomes.\n    - Challenging business environments in many countries.\n  - Tackling these structural weaknesses is the best strategy to revive private investment dynamics and boost medium-term growth prospects, especially in a less benign external environment.\n\nSource: Commodity Blues: Corporate Investment in Latin America — Nicolás Magud, May 12, 2015\n\n---\n\n Content in this bundle\n\n- A melancolia das commodities: o investimento empresarial na América Latina; May 12, 2015\n  - A melancolia das commodities: o investimento empresarial na América Latina; May 12, 2015 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - A melancolia das commodities: o investimento empresarial na América Latina; May 12, 2015 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- https://www.imf.org/wp-content/uploads/2015/05/slide11.jpg\n- Regional Economic Outlook\n- https://www.imf.org/wp-content/uploads/2015/05/slide21.jpg\n- https://www.imf.org/wp-content/uploads/2015/05/slide31.jpg\n- https://www.imf.org/wp-content/uploads/2015/05/slide4.jpg\n\nSource: https://www.imf.org/en/blogs/articles/2015/05/12/commodity-blues-corporate-investment-in-latin-america"
    }
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    "[Markdown version](/en/blogs/articles/2015/05/12/commodity-blues-corporate-investment-in-latin-america/index.md)",
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    "Authors: Nicols Magud",
    "Published: May 12, 2015",
    "Author: Nicolás Magud",
    "Date: May 12, 2015",
    "Dataset and coverage:",
    "Focus: drivers of corporate investment in Latin America, with emphasis on commodity export prices and capital inflows.",
    "Investment-to-GDP:",
    "Firm characteristics associated with higher investment:",
    "Firm characteristics associated with lower investment:",
    "Commodity export prices:",
    "Capital inflows:",
    "Private investment has been decelerating throughout emerging markets since mid-2011; Latin America is no exception.",
    "The regression results imply the relationship between investment and its drivers has not materially changed since mid-2011.",
    "Sharp moves in drivers since 2011 explain the investment slowdown.",
    "External environment risks:",
    "Policy recommendations to revive private investment:",
    "**A melancolia das commodities: o investimento empresarial na América Latina; May 12, 2015**",
    "[https://www.imf.org/wp-content/uploads/2015/05/slide11.jpg](https://www.imf.org/wp-content/uploads/2015/05/slide11.jpg)",
    "[Regional Economic Outlook](http://www.imf.org/external/pubs/ft/reo/2015/whd/eng/wreo0415.htm)",
    "[https://www.imf.org/wp-content/uploads/2015/05/slide21.jpg](https://www.imf.org/wp-content/uploads/2015/05/slide21.jpg)",
    "[https://www.imf.org/wp-content/uploads/2015/05/slide31.jpg](https://www.imf.org/wp-content/uploads/2015/05/slide31.jpg)",
    "[https://www.imf.org/wp-content/uploads/2015/05/slide4.jpg](https://www.imf.org/wp-content/uploads/2015/05/slide4.jpg)"
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      "title": "A melancolia das commodities: o investimento empresarial na América Latina; May 12, 2015",
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