DP7004 Two to Tangle: Financial Development, Political Instability and Economic Growth in Argentina (1896-2000)
|Author(s):||Nauro F. Campos, Menelaos Karanasos, Bin Tan|
|Publication Date:||October 2008|
|Keyword(s):||economic growth, financial development, political instability, power-ARCH, volatility|
|JEL(s):||C14, D72, E23, O40|
|Programme Areas:||Public Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=7004|
This paper investigates the effects of financial development and political instability on economic growth in a power-ARCH framework with data for Argentina from 1896 to 2000. Our findings suggest that (i) informal or unanticipated political instability (e.g., guerrilla warfare) has a direct negative impact on growth; (ii) formal or anticipated instability (e.g., cabinet changes) has an indirect (through volatility) impact on growth; (iii) the effect of financial development is positive and, surprisingly, not via volatility; (iv) the informal instability effects are much larger in the short- than in the long-run; and (v) the impact of financial development on economic growth is negative in the short- but positive in the long-run.