DP2609 Investment and Instability
|Author(s):||Nauro F. Campos, Jeffrey B Nugent|
|Publication Date:||November 2000|
|Keyword(s):||Aggregate Investment, Granger Causality, Political Instability|
|JEL(s):||D72, E23, O40|
|Programme Areas:||International Macroeconomics, Transition Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2609|
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.