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

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  • Campos, Nauro F
  • Karanasos, Menelaos
  • Tan, Bin

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.

Suggested Citation

  • Campos, Nauro F & Karanasos, Menelaos & Tan, Bin, 2008. "Two to Tangle: Financial Development, Political Instability and Economic Growth in Argentina (1896-2000)," CEPR Discussion Papers 7004, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7004
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    Keywords

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

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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