Socio-political instability and growth dynamics

Manoel Bittencourt (), Rangan Gupta, Philton Makena and Lardo Stander

Economic Systems, 2022, vol. 46, issue 4

Abstract: We develop an overlapping generations (OLG) monetary endogenous growth model characterized by socio-political instability, with the latter being specified as a fraction of output lost due to strikes, riots and protests. We show that growth dynamics arise in this model when socio-political instability is a function of inflation. In particular, two distinct growth dynamics emerge, one convergent and the other divergent contingent on the strength of the response of socio-political instability to inflation. Since our theoretical results hinge on socio-political instability being a function of inflation, we test the prediction that inflation affects socio-political instability positively by using a panel of 156 countries for the 1980–2012 period, and allowing for country and time fixed effects. The results indicate that inflation relates positively with socio-political instability. Policy makers should be cognisant that it is crucial to maintain long-run price stability, as failure to do so may result in high inflation emanating from excessive money supply growth, leading to high (er) socio-political instability, and ultimately, the economy being on a divergent balanced growth path.

Keywords: Socio-political instability; Inflation; Endogenous growth; Dynamics (search for similar items in EconPapers)
JEL-codes: C51 E32 O42 P44 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Socio-Political Instability and Growth Dynamics (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:46:y:2022:i:4:s093936252200067x

DOI: 10.1016/j.ecosys.2022.101005

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