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Private investment in developing countries: The effects of commodity shocks and uncertainty

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  • Jan Dehn
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    The link between ex post discrete shocks and private investment have never been formally tested in a panel data context, while the evidence of a link between ex ante commodity price uncertainty and investment is weak. This paper constructs measures of discrete shocks and uncertainty using a new multi-country data set of aggregate commodity price indices, and tests the relationship between various manifestations of commodity price variability and private investment rates within the context of a canonical empirical investment model estimated on a sample of 44 developing countries. The analysis confirms theoretical predictions that positive ex post commodity price shocks have strong positive effects on private investment rates in low income developing countries, conditional upon the level of commodity prices. It is also shown that the prospect of uncertain future commodity prices andex post negative shocks do not affect private investment rates.

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    Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2000-11.

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    Date of creation: 2000
    Handle: RePEc:csa:wpaper:2000-11
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