Department of Economics and Business Economics

Does system instability harm development? A comparative empirical study of the long run

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The paper looks at the effect of instability of political and economic institutions, using the Polity and the Fraser indices to characterize the two dimensions of society. The indices are used to derive three measures of instability: VP and VF are the average numerical annual change in each index, and ZP is the fraction of years under anarchy. All three have a negative correlation to growth. Two main theories are considered: One is the long-run transition-link: High growth in low- and middle-income countries gives a faster transition and hereby more system instability. The second is the short-run investment link: System instability gives an uncertain and unpredictable environment that harms investment, and hence growth. The combination of the two links is a main reason why the potential high growth of less developed countries is so difficult to achieve.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages24
Publication statusPublished - 15 May 2019
SeriesEconomics Working Papers
Number2019-07

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