Introduction

Abstract

This research falls under the problem area of the effects of structural adjustment policies on the development of the private sector. Despite more than a decade of adjustment, investment performance in many developing countries has shown significant decline.¹ Empirical studies show that total investment was adversely affected by factors such as external indebtedness and macroeconomic instability which led to a lack of investor confidence. Private investment, in turn, was affected by a fall-off in public investment due to the complementarity of these two components, with the effect of the real exchange rate on private investment being complex.² The lack of private investment response to macroeconomic adjustment pointed to a need to explore the heterogeneous behaviour of firms in developing countries as well as the financial constraints on private investment (FitzGerald 1992a & 1992b).