TAILIEUCHUNG - How Does Political Instability Affect Economic Growth?

Young women in the focus groups who told us they had been to career planning and career fairs with their school had a much broader range of professional aspirations, whereas those who said they had not had any career planning, aspired to work that is likely more familiar: social workers, nurses or probation officers. More research is needed to corroborate this, however it is safe to say that career education and role models for youth can only broaden their horizons and show them a larger variety of paths to take in their lives. When asked, young women have. | WP 11 12 How Does Political Instability Affect Economic Growth Ari Aisen and Francisco Jose Veiga INTERNATIONAL MONETARY FUND 2010 International Monetary Fund WP 11 12 IMF Working Paper Middle East and Central Asia Department How Does Political Instability Affect Economic Growth Prepared by Ari Aisen and Francisco Jose Veiga Authorized for distribution by Ana Lucía Coronel January 2011 Abstract This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author s and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author s and are published to elicit comments and to further debate. The purpose of this paper is to empirically determine the effects of political instability on economic growth. Using the system-GMM estimator for linear dynamic panel data models on a sample covering up to 169 countries and 5-year periods from 1960 to 2004 we find that higher degrees of political instability are associated with lower growth rates of GDP per capita. Regarding the channels of transmission we find that political instability adversely affects growth by lowering the rates of productivity growth and to a smaller degree physical and human capital accumulation. Finally economic freedom and ethnic homogeneity are beneficial to growth while democracy may have a small negative effect. JEL Classification Numbers 043 047 Keywords Economic growth political instability growth accounting productivity. Author s E-Mail Address aaisen@ fjveiga@ Ari Aisen International Monetary Fund aaisen@ . Francisco Jose Veiga Universidade do Minho and NIPE Escola de Economía e Gestão 4710-057 Braga Portugal fjveiga@ The authors wish to thank John H. McDermott conference participants at the 2010 Meeting of the European Public Choice Society and at the Fourth Conference of the Portuguese Economic Journal and seminar .

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