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Political and economic determinants of private investment

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  • Quan V. Le

    (Seattle University, Seattle, USA)

Abstract

This paper presents empirical evidence that links private investment to rate of return differential, risk aversion, and several types of political and economic risk. Estimating private investment equation for a panel of 25 developing countries over 21 years yields the following results: (i) socio-political instability characterized by nonviolent protests promotes private investment while violent uprisings hinder private investment; (ii) regime change instability characterized by constitutional government change promotes private investment while unconstitutional government change hinders private investment; and (iii) policy uncertainty characterized by variability of contract enforcement rights promotes private investment while variability of government political capacity hinders private investment. Copyright © 2004 John Wiley & Sons, Ltd.

Suggested Citation

  • Quan V. Le, 2004. "Political and economic determinants of private investment," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(4), pages 589-604.
  • Handle: RePEc:wly:jintdv:v:16:y:2004:i:4:p:589-604
    DOI: 10.1002/jid.1109
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    File URL: http://hdl.handle.net/10.1002/jid.1109
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    References listed on IDEAS

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    1. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, vol. 36(2), pages 229-242, October.
    2. Campos, Nauro F. & Nugent, Jeffrey B., 2002. "Who is afraid of political instability?," Journal of Development Economics, Elsevier, vol. 67(1), pages 157-172, February.
    3. Dani Rodrik, 1996. "Understanding Economic Policy Reform," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 9-41, March.
    4. Aizenman, Joshua & Marion, Nancy P. & Marion, Nancy P., 1993. "Macroeconomic uncertainty and private investment," Economics Letters, Elsevier, vol. 41(2), pages 207-210.
    5. Fedderke, Johannes & Klitgaard, Robert, 1998. "Economic Growth and Social Indicators: An Exploratory Analysis," Economic Development and Cultural Change, University of Chicago Press, vol. 46(3), pages 455-489, April.
    6. Quan Le & Paul J. Zak, 2001. "Political Risk and Capital Flight," Claremont Colleges Working Papers 2001-10, Claremont Colleges.
    7. Pastor, Manuel Jr. & Hilt, Eric, 1993. "Private investment and democracy in Latin America," World Development, Elsevier, vol. 21(4), pages 489-507, April.
    8. Chetan Ghate & Quan Vu Le & Paul J. Zak, 2003. "Optimal Fiscal Policy in an Economy Facing Sociopolitical Instability," Review of Development Economics, Wiley Blackwell, vol. 7(4), pages 583-598, November.
    9. Alesina, Alberto & Özler, Sule & Roubini, Nouriel & Swagel, Phillip, 1996. "Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
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    Cited by:

    1. Aboal, Diego & Noya, Nelson & Rius, Andrés, 2014. "Contract Enforcement and Investment: A Systematic Review of the Evidence," World Development, Elsevier, vol. 64(C), pages 322-338.
    2. Ahmet Faruk AYSAN & Mustapha Kamel NABLI & Marie-Ange VÉGANZONÈS-VAROUDAKIS, 2007. "Governance Institutions And Private Investment: An Application To The Middle East And North Africa," The Developing Economies, Institute of Developing Economies, vol. 45(3), pages 339-377.
    3. Ahmet Faruk Aysan & …mer Faruk Baykal & Marie-Ange Véganzonès–Varoudakis, 2011. "The Effects of Convergence in Governance on Capital Accumulation in the Black Sea Economic Cooperation Countries," Chapters,in: Does Economic Governance Matter?, chapter 6 Edward Elgar Publishing.
    4. Mustapha Kamel Nabli, 2007. "Breaking the Barriers to Higher Economic Growth : Better Governance and Deeper Reforms in the Middle East and North Africa," World Bank Publications, The World Bank, number 6914, August.
    5. van der Ploeg, Frederick & Rohner, Dominic, 2012. "War and natural resource exploitation," European Economic Review, Elsevier, vol. 56(8), pages 1714-1729.
    6. Ahmet Faruk Aysan & Zeynep Ersoy & M-A Veganzones-Varoudakis, 2007. "Does the Perception of Governance Institutions Matter for Private Investment: The Case of Middle East and North Africa," Working Papers 2007/03, Bogazici University, Department of Economics.
    7. Dearmon, Jacob & Grier, Robin, 2011. "Trust and the accumulation of physical and human capital," European Journal of Political Economy, Elsevier, vol. 27(3), pages 507-519, September.
    8. Ahmet Faruk Aysan & M-A Veganzones-Varoudakis, 2007. "How Do Political and Governance Institutions Affect Private Investment Decisions? An Application to the Middle East and North Africa," Working Papers 2007/05, Bogazici University, Department of Economics.
    9. Aysan, Ahmet Faruk & Nabli, Mustapha Kamel & Veganzones-Varoudakis, Marie-Ange, 2006. "Governance and private investment in the Middle East and North Africa," Policy Research Working Paper Series 3934, The World Bank.
    10. Ahmet Faruk Aysan & Mustapha Kamel Nabli & Marie-Ange Véganzonès–Varoudakis, 2008. "The Role of Governance Institutions in Private Investment Decisions: The Case of Middle East and North Africa," Working Papers 384, Economic Research Forum, revised 01 Jan 2008.
    11. Acevedo Rueda, Rafael Alexis & Mora Mora, José U., 2008. "Factores socio-político y judiciales como determinantes de la inversión privada en Latinoamérica
      [Social-Political and Judicial Factors as Determinants of Private Investment in Latin America]
      ," MPRA Paper 58694, University Library of Munich, Germany, revised Apr 2008.
    12. Kadir KARAGÖZ, 2010. "Determining Factors of Private Investments: An Empirical Analysis for Turkey," Sosyoekonomi Journal, Sosyoekonomi Society, issue 2010-1.
    13. Rafael Alexis Acevedo Rueda & José U. Mora Mora, 2008. "Sociopolitical and judicial factors as determinants of private investment in Latin America," Economía, Instituto de Investigaciones Económicas y Sociales (IIES). Facultad de Ciencias Económicas y Sociales. Universidad de Los Andes. Mérida, Venezuela, vol. 33(26), pages 93-118, july-dece.
    14. Rafael Alexis Acevedo Rueda & Mónica Isabel García-Pérez, 2015. "The Price of Crime: How Crime Affects Private Investment in South America," REVISTA ECONOMÍA & REGIÓN, UNIVERSIDAD TECNOLÓGICA DE BOLÍVAR, vol. 9(2), pages 47-74, December.

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