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Socio-Political Instability and Growth Dynamics

Manoel Bittencourt, Rangan Gupta (), Philton Makena () and Lardo Stander ()
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Philton Makena: Department of Economics, University of Pretoria, Pretoria, South Africa

No 201855, Working Papers from University of Pretoria, Department of Economics

Abstract: Since 2006, almost 60 percent of global protest events have been exclusively driven by economic injustice. Standard determinants of socio-political instability reported in the literature, do not fully explain the effect of monetary and fiscal policy decisions on the intended target audience of those policy outcomes. We develop an overlapping generation’s monetary endogenous growth model characterized by socio-political instability, to analyse growth dynamics and specifically, monetary policy outcomes in the presence of this augmentation. Socio-political instability is specified as the fraction of output being lost due to strikes, riots and protests and is positively related to inflation. Interesting, two distinct growth dynamics emerge, one convergent and the other divergent, if socio-political instability is a function of inflation. And by using a sample of 170 countries during the 1980 – 2012 period, and allowing for time and fixed effects, the results indicate that inflation correlates 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, and 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)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2018-08
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