Working Paper: CEPR ID: DP2609
Authors: Nauro F. Campos; Jeffrey B. Nugent
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.
Keywords: Aggregate Investment; Granger Causality; Political Instability
JEL Codes: D72; E23; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sociopolitical instability (SPI) (O17) | investment (G31) |
| sociopolitical instability (SPI) (O17) | capital stock (E22) |
| sociopolitical instability (SPI) (O17) | government policies (H59) |
| sociopolitical instability (SPI) (O17) | rate of investment (G31) |
| increase in sociopolitical instability (SPI) (O17) | increase in investment (E22) |
| sociopolitical instability (SPI) (O17) | investment rates (G31) |