Political Instability and Economic Growth at Different Stages of Economic Development: historical evidence from Greece

This study explores the relationship between political instability and growth within the perspective of GreeceÕs modern history. The narrative approach is used to identify major events of political unrest which took place in the period from 1833 onwards. Econometric estimates show that political instability exerts an adverse effect on economic growth. Likewise, poor economic performance increases the likelihood of political risk. Their relationship is not uniform across time but strengthens only after the second half of the 20th century. The impact of political instability is conditional on the stage of economic development with the most harmful effect observed in the phase of rapid industrialization. When distinguishing between permanent and temporary effects of political instability, a strongly negative effect is observed on the growth rate of potential output and a weakly negative impact on the cyclical component of GDP. Political instability is unfavorably affected by the growth rate of potential output.