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Investment and Instability

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Author Info
Campos, Nauro F
Nugent, Jeffrey B

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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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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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Related research
Keywords: Aggregate Investment; Granger Causality; Political Instability;

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Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

References listed on IDEAS
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  1. Demir, Firat, 2007. "Volatility of short term capital flows and socio-political instability in developing countries: A review," MPRA Paper 1943, University Library of Munich, Germany, revised Jan 2008. [Downloadable!]
  2. Jörg Döpke, 2004. "How Robust is the Empirical Link between Business-Cycle Volatility and Long-Run Growth in OECD Countries?," International Review of Applied Economics, Taylor and Francis Journals, vol. 18(1), pages 1-23, January. [Downloadable!] (restricted)
  3. de Haan, Arjan & Everest-Phillips, Max, 2007. "Can New Aid Modalities Handle Politics?," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  4. Claudia M. Buch & Jörg Döpke & Christian Pierdzioch, 2002. "Financial Openness and Business Cycle Volatility," Kiel Working Papers 1121, Kiel Institute for the World Economy. [Downloadable!]
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