Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/313611 
Year of Publication: 
2025
Series/Report no.: 
IDOS Discussion Paper No. 3/2025
Publisher: 
German Institute of Development and Sustainability (IDOS), Bonn
Abstract: 
This paper examines the effect of macroprudential policies on private domestic investment using a panel of 87 developing countries from 2000 to 2017. Our instrumental variables strategy exploits the geographic diffusion of macroprudential policies across countries, with the idea that reforms in neighbouring countries can affect the adoption or strengthening of domestic reforms through peer pressure or imitation effects. The findings indicate that the tightening of macro-prudential policies significantly reduces private domestic investment. This effect holds for both instruments targeting borrowers and those targeting financial institutions, and is subject to heterogeneity depending on several economic and institutional factors. The transmission channel analysis highlights that the negative impact of macroprudential policies on investment is primarily driven by a reduction in credit supply and financial inclusion.
Subjects: 
Macroprudential policies
private domestic investment
developing countries
instrumental variables
JEL: 
E22
E44
G28
Persistent Identifier of the first edition: 
ISBN: 
978-3-96021-246-1
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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