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Aggregate Investment and Political Instability: An Econometric Investigation


  • Nauro F. Campos
  • Jeffrey B. Nugent


Although in theory the long-run effect of uncertainty on investment is ambiguous, available econometric evidence widely supports a negative association between aggregate investment and political instability. A shortcoming of this body of evidence is that it has failed to investigate the existence and direction of causality between these two variables. This paper fills this gap by testing for such causal and negative long-run relationship between political instability and investment. We find there is a causal relation going from instability to investment, but it is positive and particularly strong in low-income countries. This finding is robust to various sensitivity checks. Copyright (c) The London School of Economics and Political Science 2003.

Suggested Citation

  • Nauro F. Campos & Jeffrey B. Nugent, 2003. "Aggregate Investment and Political Instability: An Econometric Investigation," Economica, London School of Economics and Political Science, vol. 70(279), pages 533-549, August.
  • Handle: RePEc:bla:econom:v:70:y:2003:i:279:p:533-549

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    References listed on IDEAS

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    Cited by:

    1. Ossama Mikhail, 2004. "Economic Freedom and The Business Cycle: The Egyptian Experience," Macroeconomics 0402002, EconWPA.
    2. Lin, Pei-Chien & Huang, Ho-Chuan (River), 2012. "Banking industry volatility and growth," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 1007-1019.
    3. repec:spr:fininn:v:2:y:2016:i:1:d:10.1186_s40854-016-0028-7 is not listed on IDEAS
    4. Fredriksson, Per G. & Wollscheid, Jim R., 2008. "The political economy of investment: The case of pollution control technology," European Journal of Political Economy, Elsevier, vol. 24(1), pages 53-72, March.
    5. Hossam ELdin Mohammed Abdelkader, 2015. "Political Instability, Uncertainty, Democracy, and Economic Growth in Egypt," Working Papers 953, Economic Research Forum, revised Oct 2015.
    6. Rune Jansen Hagen & Gaute Torsvik, 2007. "Irreversible Investments, Dynamic Inconsistency and Policy Convergence," CESifo Working Paper Series 1910, CESifo Group Munich.
    7. Alberto Chong & Mark Gradstein, 2009. "Volatility and firm growth," Journal of Economic Growth, Springer, vol. 14(1), pages 1-25, March.
    8. Pablo Acosta & Andrés Loza, 2005. "Short and long run determinants of private investment in Argentina," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 389-406, November.
    9. Sevastianova Daria, 2009. "Impact of War on Country per Capita GDP: A Descriptive Analysis," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 15(1), pages 1-28, December.
    10. Mikhail Ossama, 2005. "Economic Freedom and the Business Cycle: The Egyptian Experience," Review of Middle East Economics and Finance, De Gruyter, vol. 3(1), pages 1-19, April.
    11. Andrew Williams & Abu Siddique, 2008. "The use (and abuse) of governance indicators in economics: a review," Economics of Governance, Springer, vol. 9(2), pages 131-175, May.
    12. Kyaw, NyoNyo A. & Manley, John & Shetty, Anand, 2011. "Factors in multinational valuations: Transparency, political risk and diversification," Journal of Multinational Financial Management, Elsevier, vol. 21(1), pages 55-67, February.
    13. Olaf Unteroberdoerster & Roberto Pereira Guimarães, 2006. "What’s Driving Private Investment in Malaysia? Aggregate Trends and Firm-Level Evidence," IMF Working Papers 06/190, International Monetary Fund.
    14. António Afonso & João Tovar Jalles, 2011. "Linking Investment and Fiscal Policies," Working Papers Department of Economics 2011/16, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    15. Luintel, Kul B. & Mavrotas, George, 2005. "Examining Private Investment Heterogeneity: Evidence from a Dynamic Panel," WIDER Working Paper Series DP2005/11, World Institute for Development Economic Research (UNU-WIDER).
    16. Ronen Bar-El, 2009. "Dictators, development, and the virtue of political instability," Public Choice, Springer, vol. 138(1), pages 29-44, January.
    17. repec:eee:finlet:v:22:y:2017:i:c:p:244-248 is not listed on IDEAS
    18. Lim, Jamus Jerome, 2014. "Institutional and structural determinants of investment worldwide," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 160-177.
    19. repec:jed:journl:v:42:y:2017:i:2:p:17-37 is not listed on IDEAS
    20. repec:eee:iburev:v:27:y:2018:i:1:p:139-148 is not listed on IDEAS
    21. Saba Mushtaq & Danish Ahmed Siddiqui, 2016. "Effect of interest rate on economic performance: evidence from Islamic and non-Islamic economies," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 2(1), pages 1-14, December.

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