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How Does Political Instability Affect Economic Growth?

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  • Ari Aisen
  • Francisco José Veiga

Abstract

The purpose of this paper is to empirically determine the effects of political instability on economic growth. Using the system-GMM estimator for linear dynamic panel data models on a sample covering up to 169 countries, and 5-year periods from 1960 to 2004, we find that higher degrees of political instability are associated with lower growth rates of GDP per capita. Regarding the channels of transmission, we find that political instability adversely affects growth by lowering the rates of productivity growth and, to a smaller degree, physical and human capital accumulation. Finally, economic freedom and ethnic homogeneity are beneficial to growth, while democracy may have a small negative effect.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/12.

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Length: 28
Date of creation: 01 Jan 2011
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Handle: RePEc:imf:imfwpa:11/12

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Keywords: Economic growth; Productivity; Economic models; Human capital; political instability; gdp per capita; ethnic homogeneity; gdp growth; real gdp; growth rate; total factor productivity; growth rates; social cohesion; social conflict; growth accounting; gdp growth rates; external shocks; ethnic groups;

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Cited by:
  1. Ladislava Grochova & Ludek Kouba, 2010. "Elite Political Instability and Economic Growth: An Empirical Evidence from the Baltic States," MENDELU Working Papers in Business and Economics, Mendel University in Brno, Faculty of Business and Economics 2010-01, Mendel University in Brno, Faculty of Business and Economics.
  2. Leonid Polishchuk & Georgiy Syunyaev, 2013. "Ruling elites' rotation and asset ownership: Implications for property rights," HSE Working papers, National Research University Higher School of Economics WP BRP 43/EC/2013, National Research University Higher School of Economics.
  3. Eleftherios Goulas & Athina Zervoyianni, 2013. "Growth, Deficits and Uncertainty: Theoretical Aspects and Empirical Evidence," Working Paper Series, The Rimini Centre for Economic Analysis 53_13, The Rimini Centre for Economic Analysis.
  4. Padamja Khandelwal & Agustin Roitman, 2013. "The Economics of Political Transitions," IMF Working Papers 13/69, International Monetary Fund.
  5. Goulas, Eleftherios & Zervoyianni, Athina, 2013. "Growth, deficits and uncertainty: Theoretical aspects and empirical evidence from a panel of 27 countries," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 53(4), pages 380-392.
  6. Eleftherios Goulas & Athina Zervoyianni, 2013. "The Growth-Crime Relationship: Are There any Asymmetries?," Working Paper Series, The Rimini Centre for Economic Analysis 54_13, The Rimini Centre for Economic Analysis.
  7. MORIKAWA Masayuki, 2013. "What Type of Policy Uncertainty Matters for Business?," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 13076, Research Institute of Economy, Trade and Industry (RIETI).
  8. Costa Junior, Celso Jose, 2012. "Institutional Barrier and the World Income Distribution," MPRA Paper 45633, University Library of Munich, Germany.
  9. Bellettini, Giorgio & Berti Ceroni, Carlotta & Prarolo, Giovanni, 2013. "Political persistence and economic growth," European Journal of Political Economy, Elsevier, Elsevier, vol. 31(C), pages 165-179.
  10. Tang, Chor Foon & Abosedra, Salah, 2014. "The impacts of tourism, energy consumption and political instability on economic growth in the MENA countries," Energy Policy, Elsevier, Elsevier, vol. 68(C), pages 458-464.
  11. Knight, John, 2013. "The economic causes and consequences of social instability in China," China Economic Review, Elsevier, Elsevier, vol. 25(C), pages 17-26.
  12. Kezia De Lucas Bondezan & Joilson Dias, 2014. "Crescimento Econômico De Longo Prazo No Brasil: Uma Abordagem Sobre O Da Acumulação De Capital E Das Instituições," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Gra 096, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  13. repec:rej:journl:v:16:y:2013:i:47:p:3-22 is not listed on IDEAS
  14. Petr Rozmahel & Ludek Kouba & Ladislava Grochová & Nikola Najman, 2013. "Integration of Central and Eastern European Countries: Increasing EU Heterogeneity?," WWWforEurope Working Papers series, WWWforEurope 9, WWWforEurope.
  15. Zohal Hessami, 2013. "Corruption, Public Procurement, and the Budget Composition: Theory and Evidence from OECD Countries," Working Paper Series of the Department of Economics, University of Konstanz, Department of Economics, University of Konstanz 2013-27, Department of Economics, University of Konstanz.
  16. Lorenzo E. Bernal-Verdugo & Davide Furceri & Dominique M. Guillaume, 2013. "The Dynamic Effect of Social and Political Instability on Output," IMF Working Papers 13/91, International Monetary Fund.
  17. Vítor Castro, 2011. "The Portuguese Business Cycle: Chronology and Duration Dependence," NIPE Working Papers, NIPE - Universidade do Minho 11/2011, NIPE - Universidade do Minho.
  18. Andrew Swiston & Luis-Diego Barrot, 2011. "The Role of Structural Reforms in Raising Economic Growth in Central America," IMF Working Papers 11/248, International Monetary Fund.
  19. Hellmanzik, Christiane, 2013. "Democracy and economic outcomes: Evidence from the superstars of modern art," European Journal of Political Economy, Elsevier, Elsevier, vol. 30(C), pages 58-69.
  20. Francisco José Veiga, 2013. "Instituições, Estabilidade Política e Desempenho Económico Implicações para Portugal," NIPE Working Papers, NIPE - Universidade do Minho 11/2013, NIPE - Universidade do Minho.

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