Working Paper Series,
Trade Union Institute for Economic Research

Abstract: Since almost two decades back a large number of LDCs have embarked on World Bank supported structural adjustment programs with the objective to promote econ-omic growth and private investment. I consider how the design of reform programs can increase reform credibility and thus reduce uncertainty in the economy. Using new data on adjustment lending, I test the effects of reform on private investment behavior. I find that while most political factors seem to have no effect on private investment response in reforming countries, magnitude as well as scope of reforms are important explanatory variables.

Keywords: Credibility; Economic reform; Private investment; Structural adjustment; Uncertainty

JEL-codes: C21; E61; E65; O11; O19; O23

23 pages, December 22, 2000

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