ABSTRACT
This chapter investigates the effects on private investment of macro-political uncertainty characterized by the level of change in relative political capacity. It suggests that an increase in the variance of a government's political capacity contributes to political uncertainty, thereby reducing economic activities including private investment. The chapter discusses specification and data and describes the impact on investment of political and economic considerations. It presents a preliminary empirical look at some political determinants of private investment. The number of deaths from political violence that implies the intensification of political uncertainty is highly significant and holds the sign expected. The chapter involves mostly developing countries, and since in the capital flight cases changes in inflation are likely to be caused by political crises that reduce economic activity, one expects the sign on the standard deviation of inflation to be negative. Human capital accumulation is regarded as the most important factor in economic growth by some scholars.
