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How Does Political Instability Affect Economic Growth?

Author/Editor: Ari Aisen | Francisco José Veiga
Authorized for Distribution: January 1, 2011
Electronic Access: Free Full Text (PDF file size is 1,228KB)
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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.
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Series: Working Paper No. 11/12
Subject(s): Economic growth | Economic models | Human capital | Productivity
Author's keyword(s): Economic growth | political instability | growth accounting | productivity.
    Published:   January 1, 2011        
    ISBN/ISSN:   9781455211906/1018-5941   Format:   Paper
    Stock No:   WPIEA2011012   Pages:   28
    Price:   US$18.00
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