DP2555 Who is Afraid of Political Instability?

Author(s): Nauro F. Campos
Publication Date: September 2000
Keyword(s): Economic Growth, Political Instability
JEL(s): D72, E23, O40
Programme Areas: International Macroeconomics, Transition Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2555

An unstable macroeconomic environment is often regarded as detrimental to economic growth. Among the sources contributing to such instability, the literature has assigned most of the blame to political issues. This paper empirically tests for a causal and negative long-term relationship between political instability and economic growth, but finds no evidence of such a relationship. Sensitivity analysis indicates that there is a contemporaneous negative relationship and that, in the long run and ignoring institutional factors, the Sub-Saharan Africa group plays the determining role in steering this relationship into becoming causal and negative.