TY  - JOUR
AU  - Ozler,Sule
AU  - Rodrik,Dani
TI  - External Shocks, Politics and Private Investment: Some Theory and Empirical Evidence
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3960
PY  - 1992
Y2  - January 1992
UR  - http://www.nber.org/papers/w3960
L1  - http://www.nber.org/papers/w3960.pdf
N1  - Author contact info:
Sule Ozler
UCLA
E-Mail: ozler@econ.ucla.edu

Dani Rodrik
John F. Kennedy School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617/495-9454
Fax: 617/496-5747
E-Mail: dani_rodrik@harvard.edu
AB  - The manner in which the political system responds to external economic shocks in developing countries is a key determinant of the private investment response. We look at a simple model of political-economic equilibrium to make this intuition more precise. and develop the idea of a "political transmission mechanism." Even in the confines of this simple model, we find that ambiguities abound: domestic politics can magnify or dampen the effect of the external shock. In our empirical work. we find that a high level of urbanization magnifies the investment reduction in response to an external shock. This is consistent with the supposition that high levels of urbanization are conducive to distributive politics with pernicious economic effects. We also find that the provision of political rights is conducive to superior private investment behavior.
ER  -