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Impact of Political Polarization on Economic Conditions

Author

Listed:
  • William Ginn

    (Labcorp and Coburg University of Applied Sciences)

  • Jamel Saadaoui

    (University Paris 8)

Abstract

This study investigates the impact of political polarization on output growth, capital formation, and foreign direct investment (FDI) across 139 economies via a panel Local Projections (LP) model. We examine whether the effects of political polarization vary by income group (advanced [AEs], emerging markets [EMs]) and by political regimes (democracy, autocracy). Our findings reveal that political polarization negatively affects output growth and capital formation, with adverse effect on FDI in EMs and autocracies, highlighting “hidden” economic costs of polarization.

Suggested Citation

  • William Ginn & Jamel Saadaoui, 2025. "Impact of Political Polarization on Economic Conditions," Working Papers 2025.3, International Network for Economic Research - INFER.
    • Handle: RePEc:inf:wpaper:2025.3
    as

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    References listed on IDEAS

    as
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    3. Azzimonti, Marina, 2018. "Partisan conflict and private investment," Journal of Monetary Economics, Elsevier, vol. 93(C), pages 114-131.
    4. Norman V. Loayza & Romain Rancière & Luis Servén & Jaume Ventura, 2007. "Macroeconomic Volatility and Welfare in Developing Countries: An Introduction," The World Bank Economic Review, World Bank, vol. 21(3), pages 343-357, October.
    5. Le, Quan Vu & Zak, Paul J., 2006. "Political risk and capital flight," Journal of International Money and Finance, Elsevier, vol. 25(2), pages 308-329, March.
    6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Political polarization; panel local projections; economic development;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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