Introduction

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).