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Investment and Instability

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  • Campos, Nauro F
  • Nugent, Jeffrey B

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 such a causal and negative long-run relationship between political instability and investment. It finds that there is a robust causal relationship from instability to investment, and that it is positive. In other words, an increase in political instability causes an increase in investment (Granger). We identify three different theories that can explain this result.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2609.

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Date of creation: Nov 2000
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Handle: RePEc:cpr:ceprdp:2609
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Keywords: Aggregate Investment; Granger Causality; Political Instability;

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

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Cited by:

  1. Buch, Claudia M. & Doepke, Joerg & Pierdzioch, Christian, 2005. "Financial openness and business cycle volatility," Journal of International Money and Finance, Elsevier, vol. 24(5), pages 744-765, September.
  2. Demir, Firat, 2006. "Volatility of short term capital flows and socio-political instability in Argentina, Mexico and Turkey," MPRA Paper 1943, University Library of Munich, Germany.
  3. Jorg Dopke, 2004. "How Robust is the Empirical Link between Business-Cycle Volatility and Long-Run Growth in OECD Countries?," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(1), pages 1-23.

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