Private investment and political uncertainty
AbstractRecent theoretical and empirical work has demonstrated a clear negative link between macroeconomic and political uncertainty and levels of private investment across countries. This result raises the question what institutions might help reduce this uncertainty, in particular by allowing host governments to limit their own possibilities to act opportunistically with respect to investors. Some have argued that governments might benefit from joining a multilateral investment agreement, but there remain doubts both about the enforceability and the desirability of such an accord. An alternative possibility, proposed in a seminal article by North and Weingast (1989), is that political institutions characterized by checks and balances can allow governments to credibly commit not to engage in ex post opportunism with respect to investors. In this paper I propose a modified version of this hypothesis and test it using new cross-country data on political institutions. I also use a quantile regression technique which allows the estimated effect of political institutions to vary across countries and over time.
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Bibliographic InfoPaper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 6653.
Length: 42 pages
Date of creation: Jul 2000
Date of revision:
Political institutions; private investment; credible commitment; quantile regression;
Find related papers by JEL classification:
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
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