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How does political instability affect economic growth?

  • Ari Aisen
  • Francisco José Veiga

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 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 slowing 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 slight negative effect.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 568.

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Date of creation: Apr 2010
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Handle: RePEc:chb:bcchwp:568
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