Corporate Investment in Emerging Markets: The Role of Commodity Prices

ABSTRACT: We examine how firm-level and country-specific macroeconomic variables determine corporate investment in emerging markets. In particular, we investigate how investment decisions are affected by changes in country-specific commodity export prices, using firm-level data from 38 emerging markets for the period 1990–2013. We show that in addition to the standard firm-level variables (such as expected future profitability, cash flows, leverage, and new debt flows), commodity export prices play a significant role in driving corporate investment. Moreover, we show that the sharp decline in commodity prices since 2011 has been a key factor explaining the sizable slowdown in private investment growth during this period, especially in regions with large net commodity exporters.