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The Dynamic Effect of Social and Political Instability on Output: The Role of Reforms

  • Lorenzo E. Bernal-Verdugo
  • Davide Furceri
  • Dominique M. Guillaume

The aim of this paper is to analyze the dynamic effect of social and political instability on output. Using a panel of up to 183 countries from 1980 to 2010, the results of the paper suggest that social conflicts have a significant and negative impact on output in the short-term with the magnitude of the effect being a function of the intensity of political instability. The results also show that the recovery of output over the medium-term depends on the ability of the country to implement, in the aftermath of a social instability episode, reforms aimed at improving the level of governance. The results are robust to different checks and estimation strategies.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/91.

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Length: 41
Date of creation: 23 Apr 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/91
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  1. Davide Furceri & Aleksandra Zdzienicka, 2010. "The Consequences of Banking Crises on Public Debt," Working Papers 1015, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  2. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, vol. 36(2), pages 229-242, October.
  3. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
  4. Òscar Jordà, 2005. "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review, American Economic Association, vol. 95(1), pages 161-182, March.
  5. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
  6. Ari Aisen & Francisco José Veiga, 2010. "How does political instability affect economic growth?," Working Papers Central Bank of Chile 568, Central Bank of Chile.
  7. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
  8. Romain Bouis & Romain Duval, 2011. "Raising Potential Growth After the Crisis: A Quantitative Assessment of the Potential Gains from Various Structural Reforms in the OECD Area and Beyond," OECD Economics Department Working Papers 835, OECD Publishing.
  9. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  10. 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).
  11. Alberto Alesina & Roberto Perotti, 1993. "Income Distribution, Political Instability, and Investment," NBER Working Papers 4486, National Bureau of Economic Research, Inc.
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