POLITICAL INSTABILITY AND ECONOMIC GROWTH: A CROSS-COUNTRY EMPIRICAL INVESTIGATION

Halit YANIKKAYA (Celal Bayar University)

There is a very broad and dispersed literature on the political instability and economic growth. Since different studies used very different political instability measures, almost all studies employed only a subset of available measures, and even some studies included several of these measures in the same regressions, they provide neither comparable results nor a systematic overview of the growth effects of political instability. Thus, using the same specifications in the cross-country growth regressions for about a hundred countries for fifteen different measures of political instability where each variable measures a considerably different aspect of it, we try to accomplish two things. First, we believe that our results provide a more complete picture and also enable us to compare regression results across individual measures. Given that literature has not paid enough attention to the problems of reverse causality and parameter heterogeneity, we considered the both by using instrumental variables and dividing countries based on their development and democracy levels. Although our results at best offer mixed results, they imply that parameter heterogeneity is much more serious problem than simultaneity. In other words, they show that adverse growth effects of political instability on high-income and good-democracy countries are more evident than those on low-income and poor-democracy countries.