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Two to Tangle: Financial Development, Political Instability and Economic Growth in Argentina (1896–2000)

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Author Info

  • Campos, Nauro F

    ()
    (Brunel University)

  • Karanasos, Menelaos G.

    ()
    (Brunel University)

  • Tan, Bin

    ()
    (Brunel University)

Abstract

This paper investigates the effects of financial development and political instability on economic growth in a power-ARCH framework with data for Argentina from 1896 to 2000. Our findings suggest that (i) informal or unanticipated political instability (e.g., guerrilla warfare) has a direct negative impact on growth; (ii) formal or anticipated instability (e.g., cabinet changes) has an indirect (through volatility) impact on growth; (iii) the effect of financial development is positive and, surprisingly, not via volatility; (iv) the informal instability effects are much larger in the short- than in the long-run; and (v) the impact of financial development on economic growth is negative in the short- but positive in the long-run.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3752.

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Length: 38 pages
Date of creation: Oct 2008
Date of revision:
Publication status: published in: Journal of Banking and Finance, 2012, 36 (1), 290 - 304
Handle: RePEc:iza:izadps:dp3752

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Keywords: volatility; financial development; economic growth; political instability; power-ARCH;

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  1. Stilianos Fountas & Menelaos Karanasos, 2002. "Inflation, Output Growth, and Nominal and Real Uncertainty: Empirical Evidence for the G7," Working Papers 0064, National University of Ireland Galway, Department of Economics, revised 2002.
  2. Gerardo della Paolera and Alan M. Taylor., 1997. "Finance and Development in an Emerging Market: Argentina in the Interwar Period," Center for International and Development Economics Research (CIDER) Working Papers C97-089, University of California at Berkeley.
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  4. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  5. Norman Loayza & Romain Rancière, 2004. "Financial development, financial fragility and growth," Economics Working Papers 855, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Shields, KalvInder & Kevin B Grier & Olan T Henry & Nilss Olekalns, 2003. "The Asymmetric Effects of Uncertainty on Inflation and Output Growth," Royal Economic Society Annual Conference 2003 187, Royal Economic Society.
  7. Menelaos Karanasos & Stefanie Schurer, 2008. "Is the Relationship between Inflation and Its Uncertainty Linear?," German Economic Review, Verein für Socialpolitik, vol. 9, pages 265-286, 08.
  8. James Murdoch & Todd Sandler, 2002. "Civil wars and economic growth: A regional comparison," Defence and Peace Economics, Taylor & Francis Journals, vol. 13(6), pages 451-464.
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  25. repec:fth:wobaco:1083 is not listed on IDEAS
  26. Leandro Prados de la Escosura & Isabel Sanz Villarroya, 2006. "Contract Enforcement and Argentina’s Long-Run Decline," Working Papers in Economic History wp06-06, Universidad Carlos III, Departamento de Historia Económica e Instituciones.
  27. Taylor, Alan M., 1992. "External Dependence, Demographic Burdens, and Argentine Economic Decline After the Belle Époque," The Journal of Economic History, Cambridge University Press, vol. 52(04), pages 907-936, December.
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