Political instability and economic growth: Causation and transmission

Maximilian W. Dirks and Torsten Schmidt

European Journal of Political Economy, 2024, vol. 85, issue C

Abstract: This paper examines the link between political instability and economic growth in 34 advanced economies from 1996 to 2020. First, we use a panel VAR estimated via the System GMM to explore the endogenous relationship between economic growth and political instability and identify transmission channels. Second, we employ an instrumental variable approach, exploiting temperature variation and spillover effects of political instability to establish causality. The results of both approaches indicate that a one-standard deviation shock of political instability significantly and substantially reduces economic output. We find no evidence, however, that economic growth affects political instability.

Keywords: Political instability; Economic growth; Panel VAR; System GMM; Panel IV; Local projection (search for similar items in EconPapers)
JEL-codes: C26 C33 O43 P16 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:85:y:2024:i:c:s0176268024000880

DOI: 10.1016/j.ejpoleco.2024.102586

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