IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The Growth Effects of Institutional Instability

  • Berggren, Niclas

    ()

    (The Ratio Institute)

  • Bergh, Andreas

    ()

    (The Ratio Institute)

  • Bjørnskov, Christian

    ()

    (Aarhus University, Department of Economics)

Both institutional quality and institutional stability have been argued to stimulate economic growth. But to improve institutional quality, a country must endure a period of institutional change, which implies at least a little and possibly a lot of institutional instability. We investigate the growth effects of institutional quality and instability, using the political risk index from the ICRG in a cross-country study of 132 countries, measuring instability as the coefficient of variation. Using the aggregate index, we find evidence that institutional quality is positively linked to growth. While institutional instability is negatively related to growth in the baseline case, there are indications that the effect can be positive in rich countries, suggesting that institutional reform is not necessarily costly even during a transition period. Sensitivity analysis, e.g., decomposing the political risk index by using both its constituting components and the results of a principal components analysis, using other measures of institutional quality and excluding outliers, confirm the general results, with qualifications.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ratio.se/pdf/wp/nb_ab_cb_instability.pdf
Download Restriction: no

Paper provided by The Ratio Institute in its series Ratio Working Papers with number 135.

as
in new window

Length: 36 pages
Date of creation: 02 Jun 2009
Date of revision:
Handle: RePEc:hhs:ratioi:0135
Contact details of provider: Postal:
The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden

Phone: 08-441 59 00
Fax: 08-441 59 29
Web page: http://www.ratio.se/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Aizenman, Joshua & Marion, Nancy P, 1993. "Policy Uncertainty, Persistence and Growth," Review of International Economics, Wiley Blackwell, vol. 1(2), pages 145-63, June.
  2. Aymo Brunetti & Beatrice Weder, 1998. "Investment and institutional uncertainty: A comparative study of different uncertainty measures," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 134(3), pages 513-533, September.
  3. Ari Aisen & Francisco José Veiga, 2005. "Does Political Instability Lead to Higher Inflation? A Panel Data Analysis," IMF Working Papers 05/49, International Monetary Fund.
  4. Witold J. Henisz, 2002. "The institutional environment for infrastructure investment," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 355-389.
  5. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, 06.
  6. Alberto Alesina & Arnaud Devleeschauwer & William Easterly & Sergio Kurlat & Romain Wacziarg, 2003. "Fractionalization," NBER Working Papers 9411, National Bureau of Economic Research, Inc.
  7. Niclas Berggren & Henrik Jordahl, 2006. "Free to Trust: Economic Freedom and Social Capital," Kyklos, Wiley Blackwell, vol. 59(2), pages 141-169, 05.
  8. Pierre-Guillaume Méon & Khalid Sekkat & Laurent Weill, 2009. "Institutional Changes Now And Benefits Tomorrow: How Soon Is Tomorrow?," Economics and Politics, Wiley Blackwell, vol. 21(2), pages 319-357, 07.
  9. Jakob De Haan & Jan-Egbert Sturm, 2006. "How to Handle Economic Freedom: Reply to Lawson," Econ Journal Watch, Econ Journal Watch, vol. 3(3), pages 407-411, September.
  10. Adam Przeworski & Fernando Limongi, 1993. "Political Regimes and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 51-69, Summer.
  11. Jong-A-Pin, R., 2006. "On the measurement of political instability and its impact on economic growth," Research Report 06C05, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  12. Harry Seldadyo & Emmanuel Pandu Nugroho & Jakob de Haan, 2007. "Governance and Growth Revisited," Kyklos, Wiley Blackwell, vol. 60(2), pages 279-290, 05.
  13. Alesina, Alberto & Özler, Sule & Roubini, Nouriel & Swagel, Phillip, 1996. "Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
  14. Abdiweli Ali, 2001. "Political instability, policy uncertainty, and economic growth: An empirical investigation," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 29(1), pages 87-106, March.
  15. Addison, Tony & Baliamoune-Lutz, Mina, 2006. "Economic reform when institutional quality is weak: The case of the Maghreb," Journal of Policy Modeling, Elsevier, vol. 28(9), pages 1029-1043, December.
  16. Marie-Ange Veganzones & A. Aysan & M.K. Nabli, 2006. "Governance Institutions and Private Investment. An Application to the Middle East and North Africa," Post-Print hal-00229437, HAL.
  17. Nauro F. Campos & Jeffrey B. Nugent, 2000. "Who is Afraid of Political Instability?," William Davidson Institute Working Papers Series 326, William Davidson Institute at the University of Michigan.
  18. Bruno Merlevede & Koen Schoors, 2007. "On the Speed of Economic Reform - A Tale of the Tortoise and the Hare: Evidence from Transition Countries," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 10(1), pages 29-50.
  19. Aron, Janine, 2000. "Growth and Institutions: A Review of the Evidence," World Bank Research Observer, World Bank Group, vol. 15(1), pages 99-135, February.
  20. Christoph A. Schaltegger & Benno Torgler, 2004. "Growth Effects of Public Expenditure on the State and Local Level: Evidence from a Sample of Rich Governments," CREMA Working Paper Series 2004-16, Center for Research in Economics, Management and the Arts (CREMA).
  21. Baumol, William J, 1990. "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 893-921, October.
  22. Berggren, Niclas, 2003. "The Benefits of Economic Freedom: A Survey," Ratio Working Papers 4, The Ratio Institute.
  23. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
  24. Keefer, Philip & Knack, Stephen, 1997. "Why Don't Poor Countries Catch Up? A Cross-National Test of Institutional Explanation," Economic Inquiry, Western Economic Association International, vol. 35(3), pages 590-602, July.
  25. Francisco José Veiga & Ari Aisen, 2006. "Political Instability and Inflation Volatility," IMF Working Papers 06/212, International Monetary Fund.
  26. James L. Butkiewicz & Halit Yanikkaya, 2004. "Institutional Quality and Economic Growth: Maintenance of the Rule of Law or Democratic Institutions, or Both?," Working Papers 04-03, University of Delaware, Department of Economics.
  27. Folster, Stefan & Henrekson, Magnus, 2001. "Growth effects of government expenditure and taxation in rich countries," European Economic Review, Elsevier, vol. 45(8), pages 1501-1520, August.
  28. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
  29. Stijn Claessens & Luc Laeven, 2003. "Financial Development, Property Rights, and Growth," Journal of Finance, American Finance Association, vol. 58(6), pages 2401-2436, December.
  30. Acemoglu, Daron & Johnson, Simon & Robinson, James A & Yared, Pierre, 2005. "Income and Democracy," CEPR Discussion Papers 5273, C.E.P.R. Discussion Papers.
  31. Ian Vá¡squez, 2002. "A Retrospective on the Mexican Bailout," Cato Journal, Cato Journal, Cato Institute, vol. 21(3), Winter.
  32. Christian Bjørnskov, 2007. "Determinants of generalized trust: A cross-country comparison," Public Choice, Springer, vol. 130(1), pages 1-21, January.
  33. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," Economic Journal, Royal Economic Society, vol. 106(437), pages 1056-69, July.
  34. Barro, Robert J, 1996. "Democracy and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 1-27, March.
  35. Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
  36. Roubini, Nouriel & Swagel, Phillip & Ozler, Sule & Alesina, Alberto, 1996. "Political Instability and Economic Growth," Scholarly Articles 4553024, Harvard University Department of Economics.
  37. Jakob Haan, 2007. "Political institutions and economic growth reconsidered," Public Choice, Springer, vol. 131(3), pages 281-292, June.
  38. repec:cto:journl:v:21:y:2002:i:3:p:415-426 is not listed on IDEAS
  39. Ferderer, J Peter, 1993. "The Impact of Uncertainty on Aggregate Investment Spending: An Empirical Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 30-48, February.
  40. Bonnie Wilson & Dennis Coates & Jac Heckelman, 2008. "Democracy and Volatility: Do Special-Interest Groups Matter?," Working Papers 2008-01, Saint Louis University, Department of Economics, revised Aug 2009.
  41. Glaeser, Edward L. & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2004. "Do Institutions Cause Growth?," Scholarly Articles 27867242, Harvard University Department of Economics.
  42. Partha Chatterjee & Malik Shukayev, 2006. "Are Average Growth Rate and Volatility Related?," Staff Working Papers 06-24, Bank of Canada.
  43. Jac C. Heckelman, 2000. "Economic Freedom and Economic Growth: A Short-run Causal Investigation," Journal of Applied Economics, Universidad del CEMA, vol. 3, pages 71-91, May.
  44. Christian Daude & Ernesto Stein, 2007. "The Quality Of Institutions And Foreign Direct Investment," Economics and Politics, Wiley Blackwell, vol. 19(3), pages 317-344, November.
  45. Doucouliagos, Chris & Ulubasoglu, Mehmet Ali, 2006. "Economic freedom and economic growth: Does specification make a difference?," European Journal of Political Economy, Elsevier, vol. 22(1), pages 60-81, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hhs:ratioi:0135. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martin Korpi)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.