All Theses and Dissertations


Master of Science in Economics

Faculty / School

Faculty of Business Administration (FBA)


Department of Economics

Date of Award

Fall 2016


Dr. Mohammad Nishat

Second Advisor

Dr. Adnan Haider

Committee Member 1

Dr. Mohammad Nishat, Institute of Business Administration, Karachi

Committee Member 2

Dr. Adnan Haider, Institute of Business Administration, Karachi

Project Type


Access Type

Restricted Access


ix, 57


While analyzing what determines private investment; earlier literature is found to be more focused towards the economic side of it. However, some recent studies have attempted to create a relationship between private investment and the political environment of an economy. This study adds to the aforementioned stock of literature and makes an effort to emphasize on the role of the political instability of a country in determining its level of real capital formation which in turn effects economic growth. Another important contribution of my thesis is the theoretical model that has been developed in order to relate investment with institutional instability. The disparity among the level of real capital formation among developing countries is thought to be the result of different political environments. The developing countries that lack strong institutions are lagging behind those that have stable economic environment. Our first goal is to check whether political variables are significant in determining real private investment in developing countries and then compare the results with that of developed countries. The results of this paper are consistent with the hypothesis that political (non-economic) variables like corruption, conflicts, political stability, rule of law and government effectiveness are significant in determining real capital formation in developing countries but have no major role to play in the developed countries. This brings us to the conclusion that unstable political environment in developing countries is a major hindrance in economic growth of which we know that real private capital formation is an essential part of.

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