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Investment and Instability

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Author Info
Nauros F. Campos
Jeffrey B. Nugent

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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 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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Publisher Info
Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number 337.

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

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Related research
Keywords: political instability; aggragate investment; Granger causality;

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

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References listed on IDEAS
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  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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