Working Paper: CEPR ID: DP7004
Authors: Nauro F. Campos; Menelaos Karanasos; Bin Tan
Abstract: This paper investigates the effects of financial development and political instability on economic growth in a power-ARCH framework with data for Argentina from 1896 to 2000. Our findings suggest that (i) informal or unanticipated political instability (e.g., guerrilla warfare) has a direct negative impact on growth; (ii) formal or anticipated instability (e.g., cabinet changes) has an indirect (through volatility) impact on growth; (iii) the effect of financial development is positive and, surprisingly, not via volatility; (iv) the informal instability effects are much larger in the short- than in the long-run; and (v) the impact of financial development on economic growth is negative in the short- but positive in the long-run.
Keywords: Economic Growth; Financial Development; 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) | Economic growth (O49) |
| Formal political instability (O17) | Economic growth (O00) |
| Formal political instability (O17) | Volatility (E32) |
| Volatility (E32) | Economic growth (O49) |
| Financial development (O16) | Economic growth (O49) |