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Does system instability harm development? A comparative empirical study of the long run

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  • Martin Paldam

    (Department of Economics and Business Economics, University of Aarhus)

Abstract

The paper looks at the effect of instability of political and economic institutions, using the Polity and the Fraser indices to characterize the two dimensions of society. The indices are used to derive three measures of instability: VP and VF are the average numerical annual change in each index, and ZP is the fraction of years under anarchy. All three have a negative correlation to growth. Two main theories are considered: One is the long-run transition-link: High growth in low- and middle-income countries gives a faster transition and hereby more system instability. The second is the short-run investment link: System instability gives an uncertain and unpredictable environment that harms investment, and hence growth. The combination of the two links is a main reason why the potential high growth of less developed countries is so difficult to achieve.

Suggested Citation

  • Martin Paldam, 2019. "Does system instability harm development? A comparative empirical study of the long run," Economics Working Papers 2019-07, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2019-07
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    File URL: https://repec.econ.au.dk/repec/afn/wp/19/wp19_07.pdf
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    References listed on IDEAS

    as
    1. Martin Paldam & Erich Gundlach, 2013. "The religious transition. A long-run perspective," Public Choice, Springer, vol. 156(1), pages 105-123, July.
    2. Tavares, Jose & Wacziarg, Romain, 2001. "How democracy affects growth," European Economic Review, Elsevier, vol. 45(8), pages 1341-1378, August.
    3. Mueller,Dennis C. (ed.), 1997. "Perspectives on Public Choice," Cambridge Books, Cambridge University Press, number 9780521553773.
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    5. Olsson, Ola & Hibbs, Douglas Jr., 2005. "Biogeography and long-run economic development," European Economic Review, Elsevier, vol. 49(4), pages 909-938, May.
    6. Martin Paldam & Erich Gundlach, 2008. "Two Views on Institutions and Development: The Grand Transition vs the Primacy of Institutions," Kyklos, Wiley Blackwell, vol. 61(1), pages 65-100, February.
    7. Martin Paldam & Erich Gundlach, 2012. "The Democratic Transition: Short-run and Long-run Causality between Income and the Gastil Index," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 24(1), pages 144-168, February.
    8. Erich Gundlach & Martin Paldam, 2008. "The Democratic Transition. A study of the causality between income and the Gastil democracy index," Economics Working Papers 2008-15, Department of Economics and Business Economics, Aarhus University.
    9. Martin Paldam & Erich Gundlach, 2018. "Jumps into Democracy: Integrating the Short and Long Run in the Democratic Transition," Kyklos, Wiley Blackwell, vol. 71(3), pages 456-481, August.
    10. Edward C. Page, 1997. "The Development of the European Polity," Journal of Theoretical Politics, , vol. 9(3), pages 275-277, July.
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    Cited by:

    1. Martin Paldam, 2020. "A study of triggering events: When do political regimes change?," Public Choice, Springer, vol. 182(1), pages 181-199, January.

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    More about this item

    Keywords

    Instability; institutions; development;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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