Comparison of Investment functions between Ecuador, Chile and the United States

Abstract

The objective of this research is to determine the differences in the investment function between Ecuador, Chile and the United States from 1980 to 2014. We use World Bank Group time series data (2010). In order to fulfill this objective, we have developed different econometric models of the variables that determine the investment, and the results we obtained for Chile and the United States do not agree with the theory proposed by Keynes (1936), because they showed us a relation between the investment and the interest rate. The analysis that we carry out for Ecuador agrees with the theory proposed by Keynes (1936), in which he affirmed that the high interest rates have negative effects on the investment, whereas the production has positive effects on the same one. We add control variables that help us to better explain the model such as savings, inflation, unemployment, taxes (Chile and Ecuador) and natural resources. We analyze the results together with the control variables and find that the interest rate of Ecuador is maintained and the US investment function is in line with the theory of the investment function of Keynes (1936). Our research had limitations because sufficient data were not available so interpolation was performed and the dichotomous variable was added in each of these countries to establish the structural changes that they have undergone. Investment directly influences the development and growth of a country, however, the degree of influence depends on the reality of each country. It is necessary to provide a healthy and stable environment in the economy to attract investment from abroad.