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Investment and Instability

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  • Nauros F. Campos
  • Jeffrey B. Nugent

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 a causal and negative long-run relationship between political instability to investment. It finds that there is a robust causal relation from instability to investment, and that it is positive. In other words, an increase in political instability Granger causes an increase in investment. We identify three different theories that can explain this result.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 337.

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Length: pages
Date of creation: 01 May 2000
Date of revision:
Handle: RePEc:wdi:papers:2000-337

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Keywords: political instability; aggragate investment; Granger causality;

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Cited by:
  1. Buch, Claudia M. & Doepke, Joerg & Pierdzioch, Christian, 2005. "Financial openness and business cycle volatility," Journal of International Money and Finance, Elsevier, Elsevier, vol. 24(5), pages 744-765, September.
  2. 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.
  3. 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, Taylor & Francis Journals, vol. 18(1), pages 1-23.

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