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Socio-political instability and growth dynamics

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  • Bittencourt, Manoel
  • Gupta, Rangan
  • Makena, Philton
  • Stander, Lardo

Abstract

We develop an overlapping generations (OLG) monetary endogenous growth model characterized by socio-political instability, with the latter being specified as a fraction of output lost due to strikes, riots and protests. We show that growth dynamics arise in this model when socio-political instability is a function of inflation. In particular, two distinct growth dynamics emerge, one convergent and the other divergent contingent on the strength of the response of socio-political instability to inflation. Since our theoretical results hinge on socio-political instability being a function of inflation, we test the prediction that inflation affects socio-political instability positively by using a panel of 156 countries for the 1980–2012 period, and allowing for country and time fixed effects. The results indicate that inflation relates positively with socio-political instability. Policy makers should be cognisant that it is crucial to maintain long-run price stability, as failure to do so may result in high inflation emanating from excessive money supply growth, leading to high (er) socio-political instability, and ultimately, the economy being on a divergent balanced growth path.

Suggested Citation

  • Bittencourt, Manoel & Gupta, Rangan & Makena, Philton & Stander, Lardo, 2022. "Socio-political instability and growth dynamics," Economic Systems, Elsevier, vol. 46(4).
    • Handle: RePEc:eee:ecosys:v:46:y:2022:i:4:s093936252200067x
    DOI: 10.1016/j.ecosys.2022.101005
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    More about this item

    Keywords

    Socio-political instability; Inflation; Endogenous growth; Dynamics;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • P44 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - National Income, Product, and Expenditure; Money; Inflation

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