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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 up to 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 lowering the rates of 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 small negative effect.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/12.

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Length: 28
Date of creation: 01 Jan 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/12
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