International Finance Discussion Papers (IFDP)
December 1994
Politics, Economics, and Investment: Explaining Plant and Equipment Spending by U.S. Direct Investors in Argentina, Brazil, and Mexico
Guy V.G. Stevens
Abstract:
Few economists or laymen would deny that political events can have an important, sometimes even overwhelming, impact on economic decisions in general, and investment decisions in particular. The first goal of this paper was to integrate a number of political and non-traditional economic variables into the standard theory of investment based on the maximization of the expected value of the firm. The second goal was to test this generalized investment theory on a particularly fertile field for gauging the interaction of political and economic factors: the plant and equipment spending of foreign manufacturing affiliates of U.S. multinationals in Argentina, Brazil, and Mexico. The results of these tests show that the generalized theory is far superior to the traditional alternatives in explaining the real investment of the sample for the 1958-89 period.
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