How Does Political Instability Affect Economic Growth?
IMF Working Papers, January 1, 2011
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Bibliographic details
- Authors: Ari Aisen, Francisco José Veiga
- Published: January 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455211906.001
Purpose and methodology
- Purpose: To empirically determine the effects of political instability on economic growth.
- Estimator: system-GMM estimator for linear dynamic panel data models.
- Sample coverage: up to 169 countries.
- Time coverage: 5-year periods from 1960 to 2004.
Main empirical findings
- Higher degrees of political instability are associated with lower growth rates of GDP per capita.
- Political instability adversely affects growth primarily by lowering the rates of productivity growth.
- Political instability also lowers growth to a smaller degree via reductions in physical and human capital accumulation.
- Economic freedom is beneficial to growth.
- Ethnic homogeneity is beneficial to growth.
- Democracy may have a small negative effect on growth.
Channels of transmission (as identified)
- Productivity growth: primary channel through which political instability reduces GDP per capita growth.
- Physical capital accumulation: secondary, smaller negative effect.
- Human capital accumulation: secondary, smaller negative effect.