Credibility, Irreversibility of Investment, and Liberalization Reforms in LDCs: A Note

Andrea Bassanini

No 05-17, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: Empirical evidence of the impact of policy uncertainty on aggregate investment is mixed. However, if the relationship between policy uncertainty and investment performance is non-linear, linear regression exercises might not capture the effect of policy uncertainty. In this short paper, I present a simple model with investment irreversibility which shows that, in the presence of legal constraints on investment in foreign assets, domestic real investment performance is poorer when trade reforms are only partially incredible.

Keywords: Credibility; Trade Reforms; Investment Irreversibility; Capital Flight; Investment Performance (search for similar items in EconPapers)
JEL-codes: E22 F21 O1 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:eve:wpaper:05-17

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