| This paper has examined the relationship between political instability and FDI, among three industrialized countries, for fifteen industries and over time. The five models studied were: (1) single-equation static models, (2) partial adjustment models, (3) Almon distributed-lag models, (4) simultaneous-equation models, and (5) cointegration models.; All of the five models examined have shown a different degree of support for the statistical significance of political instability and its impact on FDI.; The static and partial adjustment models include a significant political instability variable in many of the industry regressions, for both countries. However, the sign of the coefficient does not accord, in some cases, with the hypothesized negative sign.; In the Almon distributed-lag models, the emphasis was placed on determining the possible distribution, if any, of political instability lags with respect to time, in order to determine the form through which FDI is impacted by past political instability. The results obtained indicate a major presence of a pattern whereby the political instability coefficients generally increase and then decrease with the lag length.; The objective of the use of simultaneous-equation models was to investigate a hitherto neglected phenomenon, namely the likely simultaneous effect between political instability and FDI. Though the findings show hardly any support for this effect, Granger-causality tests previously explored suggest an important and frequent relationship that---in most industries, for both countries and for both versions---flows from FDI to political instability, accompanied by a lesser number of cases exhibiting bilateral causality between the two variables.; The cointegration models were aimed at finding whether there is a significant long-run relationship between political instability and FDI. The results showed, with the exception of three industries, no such long-run relationship. |
