The Macroeconomic Impact of Social Unrest

By Metodij Hadzi-Vaskov, Samuel Pienknagura, Luca A Ricci

May 7, 2021

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Metodij Hadzi-Vaskov, Samuel Pienknagura, and Luca A Ricci. The Macroeconomic Impact of Social Unrest, (USA: International Monetary Fund, 2021) accessed September 18, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper explores the macroeconomic impact of social unrest, using a novel index based on news reports. The findings are threefold. First, unrest has an adverse effect on economic activity, with GDP remaining on average 0.2 percentage points below the pre-shock baseline six quarters after a one-standard deviation increase in the unrest index. This is driven by sharp contractions in manufacturing and services (sectoral dimension), and consumption (demand dimension). Second, unrest lowers confidence and raises uncertainty; however, its adverse effect on GDP can be mitigated by strong institutions and by a country’s policy space. Third, an unrest “event”, which is captured by a large change in the unrest index, is associated with a 1 percentage point reduction in GDP six quarters after the event. Impacts differ by type of event: episodes motivated by socio-economic reasons result in sharper GDP contractions compared to those associated with politics/elections, and events triggered by a combination of both factors lead to sharpest contractions. Results are not driven by countries with adverse growth trajectories prior to unrest events or by fiscal consolidations, and are robust to instrumenting via regional unrest.

Subject: Consumption, Econometric analysis, Economic growth, Economic recession, Economic sectors, Emerging and frontier financial markets, Estimation techniques, Financial crises, Financial markets, Fiscal consolidation, Fiscal policy, National accounts

Keywords: Consumption, E. addressing reverse causality, Economic recession, Emerging and frontier financial markets, Estimation techniques, Fiscal consolidation, GDP weight, Global, Policy space, RSUI-implied Unrest Events, Unrest data

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/135
Stock No:

WPIEA2021135
ISBN:

9781513582573
ISSN:

1018-5941

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