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Investment and Instability

  • Nauros F. Campos
  • Jeffrey B. Nugent

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

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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 337.

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Length: pages
Date of creation: 01 May 2000
Date of revision:
Handle: RePEc:wdi:papers:2000-337
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