Macroeconomic uncertainty and private investment in Argentina, Mexico and Turkey

Abstract

This article by using micro-level data analyses the impacts of macroeconomic uncertainty and country risk on real investment under financial liberalization. The results suggest that increasing macroeconomic volatility and country risk hurt fixed investment spending of real sector firms.

Acknowledgement

I am grateful to Jaime Ros, Amitava K. Dutt, Kwan S. Kim and Kajal Mukhopadhyay for their valuable suggestions on an earlier draft of this article. For financial support, I am thankful to the Kellogg Institute for International Studies. All opinions and remaining errors are mine. An appendix including a description of the data and measurement is available from the author upon request

Notes

¹ In the case of Canada, however, Dejuan and Gurr (2004) failed to find any significant relationship between volatility and growth.

² The indexes are interpreted as probabilities as suggested by Feder and Ros (1982), which then allows a logistic transformation such that ICRGP = ln[(ICRG/100)/(1-(ICRG/100))]. Because of space limitations only those by ICRGP are reported.

³ In the GMM estimation, 2 ≤ t ≤ 6 lagged values of transformed right hand side variables and time dummies at levels are used as instruments. The validity of the instruments is checked by the Sargan-test of over-identifying restrictions. The White period 2-step method is used for GMM weighting matrices.