Investment under risks and uncertainty in Afghanistan

Subika Farazi, Ahmed Mohamed Tawfick Rostom and Rishabh Sinha

No 8443, Policy Research Working Paper Series from The World Bank

Abstract: This paper investigates the state of low investment in Afghanistan by studying how investment decisions interact with risks and uncertainty in the presence of underdeveloped financial markets. The analysis shows that investing firms experience a higher probability of being affected by events related to crime and corruption and spend more on security arrangements. Firms that participate in the formal financial sector are also subject to higher levels of risk and uncertainty. As more productive firms face higher risks and uncertainty, a model of resource allocation with heterogeneous firms is used to quantify the economic loss from crime and corruption. The estimated aggregate output loss of 12 percent is significantly higher than the 7 percent loss observed in the absence of the resource allocation channel.

Keywords: Crime and Society; Access to Finance; Construction Industry; General Manufacturing; Common Carriers Industry; Textiles; Apparel&Leather Industry; Pulp&Paper Industry; Plastics&Rubber Industry; Food&Beverage Industry; Business Cycles and Stabilization Policies; Educational Sciences; Financial Sector Policy (search for similar items in EconPapers)
Date: 2018-05-15
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:8443

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