The political economy of investment: The case of pollution control technology

Per Fredriksson and Jim Wollscheid

European Journal of Political Economy, 2008, vol. 24, issue 1, 53-72

Abstract: This paper seeks to explain the implications of corruption and political instability for firm investment in abatement technology. In our theoretical set-up, a firm has an incentive to under-invest in abatement technology in order to gain a political advantage. The prediction that emerges is that greater corruptibility increases the level of abatement technology investment. This occurs because the strategic incentive to under-invest in pollution control technology declines when policymakers become more corruptible. Moreover, the model predicts that political instability raises abatement technology investment. Using steel-sector panel data from 41 countries for the years 1992-1998, we find empirical support for these predictions.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:24:y:2008:i:1:p:53-72

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