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Elite Political Instability and Economic Growth: An Empirical Evidence from the Baltic States

Author

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  • Ladislava Grochova

    (Department of Economics, Faculty of Business and Economics, Mendel University in Brno)

  • Ludek Kouba

    (Department of Economics, Faculty of Business and Economics, Mendel University in Brno)

Abstract

The growth theory of new political economics defines some factors that are necessary for economic growth among which political stability. There are distinguished two types of political instability - elite and non-elite - in topical literature. While non-elite political instability concerns about violent coups, riots or civil wars, elite political instability is represented with "soft changes" such as government breakdowns, fragile majority or minority governments. We don't doubt the importance of general political stability for successful economic development. Nevertheless, we don't agree that elite political instability can be understood as an insuperable obstacle for it. The aim of the paper is to disprove the hypothesis that elite political stability is a necessary condition for economic growth. Equally with other papers, a number of government changes is used as a proxy of elite political instability. The disproof of the hypothesis is demonstrated on data from the Baltic states where a number of government changes takes place and still fast economic growth could be seen within last two decades. The model has a form of augmented production function and includes growth rates of investments, exports, and labour as independent variables and government changes as an elite political instability dummy variable. The data resulting from estimations applying GMM and GLS because of endogeneity and autocorrelation problems are statistically significant for all three countries and confirm our hypothesis that elite political stability is a necessary condition for economic growth.

Suggested Citation

  • Ladislava Grochova & Ludek Kouba, 2010. "Elite Political Instability and Economic Growth: An Empirical Evidence from the Baltic States," MENDELU Working Papers in Business and Economics 2010-01, Mendel University in Brno, Faculty of Business and Economics.
    • Handle: RePEc:men:wpaper:01_2010
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    References listed on IDEAS

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    1. Gyimah-Brempong, Kwabena & Traynor, Thomas L, 1999. "Political Instability, Investment and Economic Growth in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 8(1), pages 52-86, March.
    2. Johannes Jütting, 2003. "Institutions and Development: A Critical Review," OECD Development Centre Working Papers 210, OECD Publishing.
    3. 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. Michal Mádr & Luděk Kouba, 2015. "Does the Political Environment Affect Inflows of Foreign Direct Investment? Evidence from Emerging Markets," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 63(6), pages 2017-2026.
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    Keywords

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    JEL classification:

    • B59 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Other
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

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