Empirical evidence of the impact of policy uncertainty on aggregate investment is mixed. However, if the relationship between policy uncertainty and investment performance is nonlinear, linear regression exercises might not capture the effect of policy uncertainty. In this paper, I present a simple model with investment irreversibility which shows that, in the presence of legal constraints on investment in foreign assets, domestic real investment performance is poorer when liberalization reforms are only partially incredible. Copyright 2006 The Author Journal compilation 2006 Banca Monte dei Paschi di Siena SpA
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Article provided by Banca Monte dei Paschi di Siena SpA in its journal Economic Notes.
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