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Investment and Instability

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  • Campos, Nauro F
  • Nugent, Jeffrey B

Abstract

Although recent research has repeatedly found a negative association between investment and political instability, the existence and direction of causality between these two variables has not yet been investigated. This paper empirically tests for such a causal and negative long-run relationship between political instability and investment. It finds that there is a robust causal relationship from instability to investment, and that it is positive. In other words, an increase in political instability causes an increase in investment (Granger). We identify three different theories that can explain this result.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2609.

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Date of creation: Nov 2000
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Handle: RePEc:cpr:ceprdp:2609

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Keywords: Aggregate Investment; Granger Causality; Political Instability;

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References

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  1. Campos, Nauro F. & Nugent, Jeffrey B., 2002. "Who is afraid of political instability?," Journal of Development Economics, Elsevier, vol. 67(1), pages 157-172, February.
  2. Durlauf, Steven N. & Quah, Danny T., 1999. "The new empirics of economic growth," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 4, pages 235-308 Elsevier.
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Citations

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Cited by:
  1. Claudia M. Buch & Jörg Döpke & Christian Pierdzioch, 2002. "Financial Openness and Business Cycle Volatility," Kiel Working Papers 1121, Kiel Institute for the World Economy.
  2. Jorg Dopke, 2004. "How Robust is the Empirical Link between Business-Cycle Volatility and Long-Run Growth in OECD Countries?," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(1), pages 1-23.
  3. Demir, Firat, 2006. "Volatility of short term capital flows and socio-political instability in Argentina, Mexico and Turkey," MPRA Paper 1943, University Library of Munich, Germany.

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