Working Paper: CEPR ID: DP6524
Authors: Nauro F. Campos; Menelaos Karanasos
Abstract: What is the relationship between economic growth and its volatility? Does political instability affect growth directly or indirectly, through volatility? This paper tries to answer such questions using a power-ARCH framework with annual time series data for Argentina from 1896 to 2000. We show that while assassinations and strikes (what we call ?informal? political instability) have a direct negative effect on economic growth, ?formal? political instability (constitutional and legislative changes) has an indirect (through volatility) negative impact. We also find preliminary support for the idea that while the effects of ?formal? instability are stronger in the long-run, those of ?informal? instability are stronger in the short-run.
Keywords: Economic growth; Political instability; Power-ARCH; Volatility
JEL Codes: C14; D72; E23; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| informal political instability (O17) | volatility (E32) |
| informal political instability (O17) | economic growth (O49) |
| formal political instability (O17) | economic growth (O49) |
| formal political instability (O17) | volatility (E32) |
| volatility (E32) | economic growth (O49) |