Media Freedom, Socio-Political Stability and Investment

Using a panel of 138 countries over 1994-2005 we identify a channel through which a media free from government control promotes domestic investment. We hypothesize that as media becomes freer socio-political stability is enhanced due to the creation of a favorable business climate that attracts investment. A simultaneous equation model (SEM) where investment and socio-political stability are jointly determined, tests this hypothesis. Our analysis implies that as the media becomes freer, socio-political stability rises, by making the government more people-oriented. Socio-political stability, in turn, provides a favorable business climate and, thus, investment is enhanced. The SEM model points to significant correlations, but does not imply any causation