Investment Determinants in Brazil: An Econometric Analysis Capital formation occurs when a society does not devote its entire productive capacity to immediate consumption needs and rather devotes resources to the making of capital goods, such as factories, machines, and tools. Capital formation in turn increases society's total productive capacity in the long term. For Brazil, the last 30 years of fixed capital gross formation as a share of GDP has been volatile. In the 1970's it averaged 23%, in 1980's it averaged 18.5%, and between 1990-1995 it averaged 15.2%. In more recent times, the 2000's onwards, investment has stabilized between 15 and 17% of GDP (World Bank, 2014). Determining the factors of investment in Brazil will inform policymakers the areas to focus on to reduce volatility moving forward. Given its impact on long term growth and economic capacity, determinants of investment is unsurprisingly a heavily explored topic. Consensuses have formed, aggregate demand for instance has consistently been shown to have the strongest positive relationship with capital formation. This intuitively makes sense, investment grows when firms anticipate greater demand. Other factors include credit availability, capital cost, inflation, and the public crowd-in or out effect. Each of these factors have been shown to have positive or negative impact on investment and capital formation. However, in the context of Brazil, understanding various market quirks, history with inflation, vulnerability to financial markets, and the country's responsive central bank will go a long way in illuminating the key investment determinants. A very recent study from the Journal of Economics, Finance and Administrative Science, titled " The Determinants of the Long Term Private Investment in Brazil" by Tadeu and Silva attempts to develop a stronger quantitative approach to these determinants. A key differentiator from past studies is that this study utilizes the most recent data from the newly established database from the Brazilian Institute of Geography and Statistics. The econometric analysis used isolates the determinants on private investment between 1996 and 2011. The econometric analysis in the study utilizes the following factors: GDP, industrial capacity, public infrastructure investment, public non-infrastructure investment, real interest rates, capital goods relative prices, inflation, credit availability, tax burden and exchange rates. The separation between public non-infrastructure and public infrastructure investment is supposed to isolate the crowding out effect that public investment is known to cause. The findings of the econometric analysis are presented in the following table:

Source: Tadeu and Silva From the study's results we can quantitatively identify the positive and negative contributors to private investment. For instance, for every 1% increase in GDP, private investment increases .51%. This affirms the strong positive relationship between GDP growth and Private Investment. Interestingly, the interest rate is shown to have a low to almost zero, positive relationship (.004) with private investment. This shows that within the Brazilian economy the interest rate, a normally significant variable of capital cost, does not impact private investment much. This can be partially explained by the fact that the real interest rate fluctuates in step with the inflation rate. Also, anecdotally, many Brazilian firms self-finance capital improvements and rarely look outwards for additional financing, thus real interest rates would have very little impact on an investment decisions (Tadeu and Silva, 2014). Inflation had a moderately negative effect: for every 1% increase in inflation, investment declines .0474%. This is surprising because many studies purport to identify inflation as a strong determinant of investment (Taylor and Francis 2011). The study's inclusion of Real Interest rate policy and Inflation shows that those making