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Investment and Instability

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  • Campos, Nauro
  • 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.

Suggested Citation

  • Campos, Nauro & Nugent, Jeffrey B, 2000. "Investment and Instability," CEPR Discussion Papers 2609, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2609
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    4. 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.

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    More about this item

    Keywords

    Granger causality; Political instability; Aggregate investment;
    All these keywords.

    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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