Does system instability harm development? A comparative empirical study of the long run
Martin Paldam ()
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Martin Paldam: Department of Economics and Business Economics, University of Aarhus, Postal: Department of Economics and Business Economics, University of Aarhus and CREATES, Fuglesangs Allé 4, building 2621, 5, 8210 Aarhus V, Denmark
Economics Working Papers from Department of Economics and Business Economics, Aarhus University
The paper looks at the effect of instability of political and economic institutions, using the Polity and the Fraser indices to characterize the two dimensions of society. The indices are used to derive three measures of instability: VP and VF are the average numerical annual change in each index, and ZP is the fraction of years under anarchy. All three have a negative correlation to growth. Two main theories are considered: One is the long-run transition-link: High growth in low- and middle-income countries gives a faster transition and hereby more system instability. The second is the short-run investment link: System instability gives an uncertain and unpredictable environment that harms investment, and hence growth. The combination of the two links is a main reason why the potential high growth of less developed countries is so difficult to achieve.
Keywords: Instability; institutions; development (search for similar items in EconPapers)
JEL-codes: O11 O43 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2019-07
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