decisions and careers in order to prevent their access to the sources of rents (e.g. natural resources) when political checks and balances are low and electoral competition is absent.

As in Keefer and Knack (2007) we adopt the measure checks and balances cum elections from the Database of Political Institutions (DPI).<sup>16</sup> This measure is a function of the number of parties in the government coalition (for parliamentary systems), whether the president's party has a majority in the legislature (presidential systems), whether elections are governed by closed-list or open-list rules (with the former granting more authority to the heads of parties), and of the DPI's legislative index of electoral competitiveness.

The use of formal checks and balances presents, however, some limitations. Since it is only one of many possible political determinants of low institutional quality, the results are unlikely to be as strong as for quality of governance. Moreover, this measure draws on a fixed view of organization of government and some checks and balances may be hard to observe.

We would expect both quality of governance and checks and balances to show little variation over time and great variation across countries. However, the relatively wide time span allows the within standard deviation to be almost half of the across standard deviation (2.6 against 5.6) for quality of governance<sup>17</sup> and nearly the same for checks and balances (1.3 against 1.0), justifying the panel analysis.

A set of other factors is likely to impact the quantity and the volatility of public investment. As observed in Knack and Keefer (2007), left-leaning governments might prove more prone to intervene in the economy and favoring more redistribution as opposed to right governments, therefore increasing the volatility of public investment. Thus, a dummy variable that takes the value one if the largest party in the legislature is coded in DPI as left-leaning, and zero otherwise, is used.

Price of investment goods is another key determinant of public investment. When prices are high, the ratio of public investment to GDP is expected to decrease, however this might not be true for the ratio of public investment to total investment. If private investors are more sensitive to price variations than the public ones, we could observe an increase in the ratio of public investment to total investment.

Economic income and country size are expected to have some impact on public investment. Standard macroeconomic theory would predict a positive effect from income, nonetheless it is common for developing countries to spend more relative to the GDP or total investment than advanced economies to foster the catch up process, or as a result of rent-seeking activities. At the same time, bigger countries are expected to invest more than smaller ones because they generate a stronger demand, thus population is introduced as a time-varying measure of country size.

Differently from Keefer and Knack (2007), we control for a set of additional covariates that are expected to have important effects on the dependent variables. Conflicts depress economic activity as well as public investment because resources are typically diverted towards defense and military activities, thereby increasing the volatility. Thus, drawing from the Centre for the Study of Civil War (CSCW) dataset, we create a dummy variable that takes the value one if there are at least 1,000 battle-related deaths, zero otherwise.

Overseas Development Assistance (ODA) net disbursements can be used by the government to invest or free up government resources that can be directed toward public investment, therefore exerting a positive impact (Sturm, 2001). At the same time, the

> 16 As an alternative measure we adopt a laxer version of checks and balances cum elections. 17 Within/across relative variation is even higher for quality of governance wide (4 against 7.5).

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