Discussion Paper Details

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Title: Investment and Instability

Author(s): Nauro F. Campos and Jeffrey B Nugent

Publication Date: November 2000

Keyword(s): Aggregate Investment, Granger Causality and Political Instability

Programme Area(s): International Macroeconomics and Transition Economics

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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Bibliographic Reference

Campos, N and Nugent, J. 2000. 'Investment and Instability'. London, Centre for Economic Policy Research.