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

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

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7004.

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Date of creation: Oct 2008
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Handle: RePEc:cpr:ceprdp:7004
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