How does political instability affect economic growth?

Research, Preprint OPEN
Ari Aisen ; Francisco J. Veiga (2010)
  • Publisher: Universidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE)
  • Subject: General, [Economic growth;Economic models;Education;Productivity;Political economy;Human capital;political instability, growth accounting, gdp per capita, tfp, ethnic homogeneity, Economywide Country Studies] | Economic growth | Growth accounting | Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence | Political instability | O43 | Economic growth, political instability, growth accounting, productivity | O47 | Productivity | Institutions and Growth | Economie | Economic growth; Political instability; Growth accounting; Productivity
    • jel: jel:O47 | jel:O43

The purpose of this paper is to empirically determine the effects of political instability on economic growth. Using the system-GMM estimator for linear dynamic panel data models on a sample covering up to 169 countries, and 5-year periods from 1960 to 2004, we find that higher degrees of political instability are associated with lower growth rates of GDP per capita. Regarding the channels of transmission, we find that political instability adversely affects growth by lowering the rates of productivity growth and, to a smaller degree, physical and human capital accumulation. Finally, economic freedom and ethnic homogeneity are beneficial to growth, while democracy may have a small negative effect. Fundação para a Ciência e a Tecnologia (FCT) - Programa Operacional Ciência e Inovação 2010 (POCI 2010) Fundo Europeu de Desenvolvimento Regional (FEDER)
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