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Consequences of Political Instability, Governance and Bureaucratic Corruption on Inflation and Growth: The Case of Pakistan

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  • Adnan Haider

    (Monetary Policy Department at State Bank of Pakistan)

  • Musleh ud Din

    (Pakistan Institute of Development Economics, Islamabad)

  • Ejaz Ghani

    (Pakistan Institute of Development Economics, Islamabad)

Abstract

This paper presents a theoretical model with micro-foundations that captures some important features of Pakistan‘s economy which have emerged in sixty-four years of its history. A comparison of Pakistan‘s economic performance during different regimes shows that macroeconomic fundamentals tend to show an improvement during the autocratic regimes as compared with those prevailing during democratic regimes. In particular, periods of autocratic regimes are typically characterised by low inflation, robust growth and low level of bureaucratic corruption due to better governance. In contrast, the economic performance during the democratic regimes has been observed to worsen with weak governance and high levels of corruption, high inflation due partly to reliance on seigniorage to finance public spending, and lacklustre growth. Using annual data from 1950 to 2011, computational modelling is carried out by applying Markov-Regime switching technique with maximum-likelihood procedures. The estimation results based on empirical modelling setup are supportive of the above stylised-facts and also confirm the implications of the theoretical model.

Suggested Citation

  • Adnan Haider & Musleh ud Din & Ejaz Ghani, 2011. "Consequences of Political Instability, Governance and Bureaucratic Corruption on Inflation and Growth: The Case of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 50(4), pages 773-807.
  • Handle: RePEc:pid:journl:v:50:y:2011:i:4:p:773-807
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    Cited by:

    1. Garcia Fortuny, Judit, 2014. "The Effects of Corruption and Seigniorage on Growth and Inflation," Working Papers 2072/246961, Universitat Rovira i Virgili, Department of Economics.
    2. Muhammad Shabbir & Imrab Shaheen & Fahrat Qayyum, 2020. "Domestic Investment in Pakistan: An Analysis Across Different Political Regimes," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 344-351.
    3. Hasim Akça & Ahmet Yilmaz Ata & Coskun Karaca, 2012. "Inflation and Corruption Relationship: Evidence from Panel Data in Developed and Developing Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 281-295.

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    More about this item

    Keywords

    Political Instability; Governance; Corruption; Inflation; Growth;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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