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Political and economic determinants of private investment

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  • Quan V. Le

    (Seattle University, Seattle, USA)

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    Abstract

    This paper presents empirical evidence that links private investment to rate of return differential, risk aversion, and several types of political and economic risk. Estimating private investment equation for a panel of 25 developing countries over 21 years yields the following results: (i) socio-political instability characterized by nonviolent protests promotes private investment while violent uprisings hinder private investment; (ii) regime change instability characterized by constitutional government change promotes private investment while unconstitutional government change hinders private investment; and (iii) policy uncertainty characterized by variability of contract enforcement rights promotes private investment while variability of government political capacity hinders private investment. Copyright © 2004 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/jid.1109
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

    Volume (Year): 16 (2004)
    Issue (Month): 4 ()
    Pages: 589-604

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    Handle: RePEc:wly:jintdv:v:16:y:2004:i:4:p:589-604

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    Web page: http://www3.interscience.wiley.com/journal/5102/home

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    1. Dani Rodrik, 1989. "Policy Uncertainty and Private Investment in Developing Countries," NBER Working Papers 2999, National Bureau of Economic Research, Inc.
    2. Fedderke, Johannes & Klitgaard, Robert, 1998. "Economic Growth and Social Indicators: An Exploratory Analysis," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 46(3), pages 455-89, April.
    3. Campos, Nauro F. & Nugent, Jeffrey B., 2002. "Who is afraid of political instability?," Journal of Development Economics, Elsevier, Elsevier, vol. 67(1), pages 157-172, February.
    4. Dani Rodrik, 1996. "Understanding Economic Policy Reform," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 34(1), pages 9-41, March.
    5. Aizenman, Joshua & Marion, Nancy P. & Marion, Nancy P., 1993. "Macroeconomic uncertainty and private investment," Economics Letters, Elsevier, Elsevier, vol. 41(2), pages 207-210.
    6. Chetan Ghate & Quan Vu Le & Paul J. Zak, 2003. "Optimal Fiscal Policy in an Economy Facing Sociopolitical Instability," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 7(4), pages 583-598, November.
    7. Alberto Alesina & Sule Ozler & Nouriel Roubini & Phillip Swagel, 1992. "Political Instability and Economic Growth," NBER Working Papers 4173, National Bureau of Economic Research, Inc.
    8. Pastor, Manuel Jr. & Hilt, Eric, 1993. "Private investment and democracy in Latin America," World Development, Elsevier, Elsevier, vol. 21(4), pages 489-507, April.
    9. Quan Le & Paul J. Zak, 2001. "Political Risk and Capital Flight," Claremont Colleges Working Papers, Claremont Colleges 2001-10, Claremont Colleges.
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    Cited by:
    1. Ahmet Faruk Aysan & M.-K. Nabli & Marie-Ange Veganzones, 2011. "Governance and Private Investment in the Middle East and North Africa," Working Papers, HAL halshs-00557250, HAL.
    2. Frederick Van der Ploeg & Dominic Rohner, 2010. "War and Natural Resource Exploitation," CESifo Working Paper Series 3244, CESifo Group Munich.
    3. Ahmet Faruk Aysan & M. K. Nabli & M-A Veganzones-Varoudakis, 2006. "Governance Institutions and Private Investment: An Application to the Middle East and North Africa," Working Papers, Bogazici University, Department of Economics 2006/08, Bogazici University, Department of Economics.
    4. Mustapha Kamel Nabli, 2007. "Breaking the Barriers to Higher Economic Growth : Better Governance and Deeper Reforms in the Middle East and North Africa," World Bank Publications, The World Bank, number 6914, August.
    5. Ahmet Faruk Aysan & Zeynep Ersoy & M-A Veganzones-Varoudakis, 2007. "Does the Perception of Governance Institutions Matter for Private Investment: The Case of Middle East and North Africa," Working Papers, Bogazici University, Department of Economics 2007/03, Bogazici University, Department of Economics.
    6. Rafael Alexis Acevedo Rueda & José U. Mora Mora, 2008. "Sociopolitical and judicial factors as determinants of private investment in Latin America," Economía, Instituto de Investigaciones Económicas y Sociales (IIES). Facultad de Ciencias Económicas y Sociales. Universidad de Los Andes. Mérida, Venezuela, Instituto de Investigaciones Económicas y Sociales (IIES). Facultad de Ciencias Económicas y Sociales. Universidad de Los Andes. Mérida, Venezuela, vol. 33(26), pages 93-118, july-dece.
    7. Dearmon, Jacob & Grier, Robin, 2011. "Trust and the accumulation of physical and human capital," European Journal of Political Economy, Elsevier, Elsevier, vol. 27(3), pages 507-519, September.
    8. Ahmet Faruk Aysan & M-A Veganzones-Varoudakis, 2007. "How Do Political and Governance Institutions Affect Private Investment Decisions? An Application to the Middle East and North Africa," Working Papers, Bogazici University, Department of Economics 2007/05, Bogazici University, Department of Economics.

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