Impact of political instability on economic growth, exchange rates and unemployment: Malaysian evidence

According to economists, political instability is harmful for economic development of any Country. This research attempts to test and analyze causal relationship between political instability and economic growth along with unemployment and exchange rate in the context of Malaysia. Malaysia was faced with political instability issues due to the differences and existence of various races. However according to recent studies, it is viewed as a politically stable economy. There are only a few studies carried out investigating the causal relationship between political instability, exchange rate and unemployment. Our main objective of the study is to investigate the impact of political instability on economic growth along with exchange rate and unemployment. This study employs autoregressive distributed lag (ARDL) approach to cointegration proposed by Pesaran et al. (2001). It depends on a time series data over the time of 34 years starting from 1984. Based on the above rigorous methodology, our empirical results tend to suggest that there is a long run relationship between political instability, exchange rate, unemployment and economic growth and that the impact of political instability on economic growth is significant. The findings are in line with the theoretical background and have strong policy implication for countries like Malaysia.