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Credibility, Irreversibility of Investment, and Liberalization Reforms in LDCs

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  • Andrea Bassanini

    (CEPN - Centre d'Economie de l'Université Paris Nord (ancienne affiliation) - UP13 - Université Paris 13 - CNRS - Centre National de la Recherche Scientifique)

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 nonlinear, linear regression exercises might not capture the effect of policy uncertainty. In this 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 liberalization reforms are only partially incredible.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Andrea Bassanini, 2006. "Credibility, Irreversibility of Investment, and Liberalization Reforms in LDCs," Post-Print halshs-00120491, HAL.
    • Handle: RePEc:hal:journl:halshs-00120491
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    References listed on IDEAS

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    1. Van Wijnbergen, Sweder, 1985. "Trade reform, aggregate investment and capital flight : On credibility and the value of information," Economics Letters, Elsevier, vol. 19(4), pages 369-372.
    2. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, vol. 36(2), pages 229-242, October.
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    6. Aizenman, Joshua & Marion, Nancy P, 1993. "Policy Uncertainty, Persistence and Growth," Review of International Economics, Wiley Blackwell, vol. 1(2), pages 145-163, June.
    7. Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February.
    8. Aizenman, Joshua, 1997. "Investment in new activities and the welfare cost of uncertainty," Journal of Development Economics, Elsevier, vol. 52(2), pages 259-277, April.
    9. Calvo, Guillermo A., 1987. "On the costs of temporary policy," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 245-261, October.
    10. Catherine Pattillo, 1998. "Investment, Uncertainty, and Irreversibility in Ghana," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 522-553, September.
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    Cited by:

    1. Veenendaal, Paul J.J., 2007. "The EU-ETS and existing energy taxes," Conference papers 331606, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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