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Macroeconomic imbalances, socio-political instability and public provision: effects on private investment

Constantina Kottaridi () and Monica Escaleras ()

No 29, Working Papers from University of Peloponnese, Department of Economics

Abstract: Most studies on private investment focus either in the macroeconomic conditions or political conditions to explain private investment patterns. We go a step further and examine empirically the joint effect of macroeconomic imbalances, sociopolitical instability and public provision on private investment using data from 50 developing countries between 1970 and 2000. Our results show that real exchange rate uncertainty and socio-political instability jointly have a negative impact on private investment. Further, our results establish a detrimental effect of public provision when measured as public investment, but a beneficial effect when measured by infrastructure availability. Interesting policy implications stemming from the analysis regard the implementation of macro policies serving to limit excess volatility in relative prices, institutional reforms that lessen social tensions and provision of adequate amount and quality of public infrastructure to enable investment undertaking by lowering investors’ costs.

Keywords: Private investment; real exchange rate; socio-political instability; public provision (search for similar items in EconPapers)
Pages: 27 pages
Date: 2008
New Economics Papers: this item is included in nep-mac and nep-pol
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