Financial Constraints in Investment - Foreign Versus Domestic Firms. Panel Data Results from Estonia, 1995-1999

Using data from Estonian manufacturing firms during the period 1995-1999 we apply panel data techniques, in particular the Arellano-Bond (1991) method to investigate the investment behaviour. We employ the model of optimal capital accumulation in the presence of convex adjustment costs. We find that the domestic companies seem to be more financial constrained than those with the presence of foreign investors. Furthermore we find that smaller firms are more constrained than their larger counterparts