| The theory of financial repression or liberalization establishes that the relationship between private investment and financial variables---real interest rates and credit availability---is nonlinear. That is, at very low or negative interest rates, a positive shock in such rates has a positive effect on the volume and quality of private investment due to its stimulus to the accumulation of resources in a world where self-finance is important. At higher rates, a positive shock in the real interest rates induces economic agents to accumulate financial assets rather than to invest in physical capital. At higher rates, therefore, this relationship is expected to be negative. On the other hand, one expects that at low real interest rates credit constraints are more severe than at higher rates. Credit availability, therefore, should have a higher impact on private investment decisions when real interest rates are low. We investigate this issue using a logistic smooth transition vector error correction (LSTVEC) model in which private investment, public investment, bank lending real interest rates, gross domestic product generated by the private sector and bank loans to the private sector are considered as endogenous variables. We use data from Venezuela for a period that coincides with administrative controls and decontrol of nominal interest rates. Despite the fact that we found evidence of asymmetries between the growth rate of private investment and financial variables, we did not find evidence for a positive effect of positive shocks to changes in the real interest rate on private investment even in periods of credit contraction. In addition, when the economy faces a credit constraint, a negative shock to our indicator for credit availability causes a higher contractionary effect on the growth rate of private investment. Thus, our findings are not totally in line with the predictions of the financial liberalization theory. |
