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Political and economic determinants of private investment

  • Quan V. Le

    (Seattle University, Seattle, USA)

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    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.

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    File URL: http://hdl.handle.net/10.1002/jid.1109
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    Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

    Volume (Year): 16 (2004)
    Issue (Month): 4 ()
    Pages: 589-604

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    Handle: RePEc:wly:jintdv:v:16:y:2004:i:4:p:589-604
    Contact details of provider: Web page: http://www3.interscience.wiley.com/journal/5102/home

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    1. 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.
    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, 1989. "Policy Uncertainty and Private Investment in Developing Countries," NBER Working Papers 2999, National Bureau of Economic Research, Inc.
    4. Pastor, Manuel Jr. & Hilt, Eric, 1993. "Private investment and democracy in Latin America," World Development, Elsevier, vol. 21(4), pages 489-507, April.
    5. Quan Le & Paul J. Zak, 2001. "Political Risk and Capital Flight," Claremont Colleges Working Papers 2001-10, Claremont Colleges.
    6. Alesina, Alberto, et al, 1996. " Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
    7. Aizenman, Joshua & Marion, Nancy P. & Marion, Nancy P., 1993. "Macroeconomic uncertainty and private investment," Economics Letters, Elsevier, vol. 41(2), pages 207-210.
    8. Dani Rodrik, 1996. "Understanding Economic Policy Reform," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 9-41, March.
    9. Roubini, Nouriel & Swagel, Phillip & Ozler, Sule & Alesina, Alberto, 1996. "Political Instability and Economic Growth," Scholarly Articles 4553024, Harvard University Department of Economics.
    10. 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 455-89, April.
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