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Which foreign direct investments are most affected by political instability? Analysis of quarterly greenfield investment flows into countries in the Middle East and North Africa from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non-resource tradable sectors. By contrast, investments in natural resource sectors and non-tradable activities appear insensitive to such shocks. Consistent with these patterns, the significant reduction in investment inflows in Arab Spring affected economies was starkest in the non-resource manufacturing sector. Political instability is thus associated with increased reliance on non-tradables and aggravated resource dependence. Conversely, how intensified political instability affects aggregate foreign direct investment is critically contingent on the initial sector composition of these flows.
Debt Markets --- Dutch Disease --- E-Business --- Emerging Markets --- Energy --- Energy Production and Transportation --- Finance and Financial Sector Development --- Foreign Direct Investment --- Greenfield FDI --- Investment & Investment Climate --- Macroeconomics and Economic Growth --- Natural Resources --- Non-Tradables --- Political Instability --- Private Sector Development --- Tradables
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This paper shows that aggregate investment expenditure shares on tradable and nontradable goods are very similar across countries and regions. Furthermore, the two expenditure shares have remained close to constant over time, with the average expenditure share on nontradables varying between 0.54-0.62 over the 1960-2004 period. These empirical findings offer a new restriction for two-sector models of the aggregate economy. Combined with the fact that the relative price of nontradables correlates positively with income and exhibits large differences across space and time, our findings suggest that tradable and nontradable goods in investment can be modeled using the Cobb-Douglas aggregator.
Investments --- Non-traded goods --- Commercial products --- Commodities --- Economic goods --- Merchandise --- Products, Commercial --- Commodity exchanges --- Manufactures --- Substitute products --- Non-tradables --- Nontradables --- Nontraded goods --- International trade --- Investing --- Investment management --- Portfolio --- Finance --- Disinvestment --- Loans --- Saving and investment --- Speculation --- Econometric models. --- Contracting out --- Macroeconomics --- Public Finance --- Industries: Manufacturing --- National Government Expenditures and Related Policies: General --- Personal Income, Wealth, and Their Distributions --- Macroeconomics: Consumption --- Saving --- Wealth --- General Aggregative Models: General --- Industry Studies: Manufacturing: General --- Public finance & taxation --- Manufacturing industries --- Expenditure --- Personal income --- Consumption --- National accounts --- Manufacturing --- Expenditures, Public --- Income --- Economics --- National income --- United States
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