Private investment increases in a cross‐country panel when formal institutions (e.g., term limits) do not constrain executives' planning horizons. This evidence is consistent with institutions that encourage reputation‐building checking opportunistic incentives and extends evidence from domestic public choice applications to an international political economy setting. In addition, investment exhibits a nonmonotonic relationship with a polity's veto players. This relationship may reflect trade‐offs between constituents' monitoring‐capacity and agents' opportunistic ability. It may also highlight a channel through which lock‐in effects retard neoclassical convergence and thus motivate different normative prescriptions than those emerging from contributions where institutions and real activity must exhibit a monotonic relationship. (JEL D72, D78, E61)
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