Policy Uncertainty and Long-Run Investment and Output across Countries

Byeongju Jeong

International Economic Review, 2002, vol. 43, issue 2, 363-392

Abstract: I present a model economy where policy uncertainty creates short-term bias in investment and leads to a higher capital price and lower long-run investment and output. I conduct a calibration exercise using a set of industry-level investment data across countries. Between the lowest-income and the highest-income countries, policy uncertainty can account for capital price and investment-level differences by a factor of about 3 and for the output-level difference by a factor of about 2. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

Date: 2002
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