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Investment and Instability

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Author Info
Nauro F. Campos (CERGE-EI)
Jeffrey B. Nugent (University of Southern California)

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Abstract

Although recet research has repeatedly found a negative association between investment and socio-political instability (SPI), the existence and direction of causality between these two variables has not yet been investigated. We construct an index of SPI for non-overlaping five-years periods between 1960 and 1995 for a sample of 98 developing countries. We use the Granger causality framework and report Anderson-Hsiao- Arellano instrumental variable estimates. Our main finding is that, for the full sample, there is a robust causal relationship going from SPI to investment, and it is positive. In other words, we find three reasons may explain this result: one is that SPI delays investment, another is that it destroys at least part of the capital stock, and the third is that SPI causes changes in government and in government policies that are benefical in the long run.

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Publisher Info
Paper provided by EconWPA in its series Development and Comp Systems with number 0012015.

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Length: 19 pages
Date of creation: 23 Feb 2001
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Handle: RePEc:wpa:wuwpdc:0012015

Note: Type of Document - Acrobat PDF; pages: 19 ; figures: included
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Related research
Keywords: Political instability; Aggregate 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

References listed on IDEAS
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  2. Ades, Alberto & Chua, Hak B, 1997. " Thy Neighbor's Curse: Regional Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 2(3), pages 279-304, September. [Downloadable!] (restricted)
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Cited by:
(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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