How Does Political Instability Affect Economic Growth?

January 1, 2011

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Format: Chicago

Ari Aisen, and Francisco José Veiga. How Does Political Instability Affect Economic Growth?, (USA: International Monetary Fund, 2011) accessed November 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Capital accumulation, Human capital, Population growth, Productivity, Total factor productivity

Keywords: Real GDP, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/012
Stock No:

WPIEA2011012
ISBN:

9781455211906
ISSN:

1018-5941

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