Estimating the Effects of Political Instability in Nascent Democracies

Emery Thomas J. (), Kovac Mitja () and Rok Spruk
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Emery Thomas J.: Research Fellow, UWA Business School, University of Western Australia, 8716 Hackett Dr, Crawley, WA 6009, Australia
Kovac Mitja: Professor of Law and Economics, School of Economics and Business, University of Ljubljana, Kardeljeva Ploscad 17, SI-1000 Ljubljana, Slovenia

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2023, vol. 243, issue 6, 599-642

Abstract: In this paper, we revisit and examine the effect of political instability on institutional quality. To this end, we exploit the crackdown of government cabinet in 2008 that led to almost two decades of pervasive political instability using the unique case of Slovenia and estimate the average treatment effect of political instability and the missing counterfactual scenario for the period 1996–2020. Based on large-scale Bayesian analysis with Metropolis–Hastings algorithm, we extract the residual component of institutional quality from the variation in predetermined unobserved characteristics. Across more than 1.5 million sequenced random samples, we construct novel time-varying estimates of institutional quality at the local and regional level. Our difference-in-differences and synthetic control estimates emphasize a rampant deterioration of institutional quality in response to political instability with evidence of weakened rule of law, less effective public sector, decreased political accountability, and more widespread prevalence of power abuses. The estimated negative effects of political instability are robust to a variety of placebo checks across more than 12 billion placebo averages for institutional quality outcome variable using random sampling method of treatment permutation.

Keywords: political instability; institutional quality; latent variable analysis; synthetic control method (search for similar items in EconPapers)
JEL-codes: C33 D73 H70 O43 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:243:y:2023:i:6:p:599-642:n:4

DOI: 10.1515/jbnst-2022-0074

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