Abstract
Real investment in Poland declined from 1990 to 1993, and has only slowly since recovered, while real credit decreased for a number of years. Has declining credit adversely affected investment? Controlling for industry and time fixed effect, and using dynamic panel data techniques, I estimate an investment model, which includes external and internal finance as investment determinants. The results suggest that internal and external finance are positively related to investment. Thus, industries seem to operate under hard budget constraints. Also, internal finance is more important than external finance in determining investment, thus indicating that credit rationing occurs. Finally, the effects of external finance are slightly greater among durable goods producing industries than among non-durable goods producing industries.
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