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

Author

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

Abstract

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.

Suggested Citation

  • Lorenzo E. Bernal-Verdugo & Davide Furceri & Dominique M. Guillaume, 2013. "The Dynamic Effect of Social and Political Instability on Output; The Role of Reforms," IMF Working Papers 13/91, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:13/91
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    References listed on IDEAS

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    1. Davide Furceri & Aleksandra Zdzienicka, 2012. "The Consequences of Banking Crises for Public Debt," International Finance, Wiley Blackwell, vol. 15(3), pages 289-307, December.
    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. 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.
    4. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June.
    5. 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.
    6. Aisen, Ari & Veiga, Francisco José, 2013. "How does political instability affect economic growth?," European Journal of Political Economy, Elsevier, vol. 29(C), pages 151-167.
    7. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
    8. 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.
    9. repec:cup:apsrev:v:97:y:2003:i:03:p:407-423_00 is not listed on IDEAS
    10. 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.
    11. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    12. Jong-A-Pin, Richard, 2009. "On the measurement of political instability and its impact on economic growth," European Journal of Political Economy, Elsevier, vol. 25(1), pages 15-29, March.
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    Cited by:

    1. MORIKAWA Masayuki, 2013. "What Type of Policy Uncertainty Matters for Business?," Discussion papers 13076, Research Institute of Economy, Trade and Industry (RIETI).
    2. repec:bla:pacecr:v:21:y:2016:i:5:p:527-540 is not listed on IDEAS
    3. Hossam ELdin Mohammed Abdelkader, 2015. "Political Instability, Uncertainty, Democracy, and Economic Growth in Egypt," Working Papers 953, Economic Research Forum, revised Oct 2015.
    4. Pitterle, Ingo & Haufler, Fabio & Hong, Pingfan, 2015. "Assessing emerging markets’ vulnerability to financial crisis," Journal of Policy Modeling, Elsevier, vol. 37(3), pages 484-500.

    More about this item

    Keywords

    Economic models; Economic growth; Fiscal reforms; Political economy; social conflicts; reforms; crisis; growth; governance; social instability; political instability; social conflict; Other; General; General;

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