Is Political Instability an Obstacle to Economic growth? Evidence from South Asia

Abstract

The nexus existing between the growth rate of countries and political instability has been subjected to increasing interest among academic scholars and policymakers in different contexts all around the globe. The current study examined the relationship between political instability and economic growth in both  short and long-run, employing the Panel Auto Regressive Distributed Lag (PARDL) model. Through the efforts taken via the study to redefine the political instability and growth nexus in South Asia, it could be stated that despite the insignificant impact of political instability on economic growth in the short run, countries gain the capability in elevating the growth level by maintaining stable political regimes in the long run. The results suggested that there is an overall negative and also a significant linkage between political instability and the long-run growth rate. The holistic analysis highlighted that regulatory quality and civil liberties needed to be well ensured to attain economic growth in the long run as they showed a significant positive relationship with the growth of the South Asian region. The short-run analysis of the variables depicted that there is no strong linkage between the growth and instabilities in the political arena, as the majority of the proxies of political instability exhibited an insignificant relationship with economic growth except regulatory quality.

Keywords: Economic growth; PARDL model; Political Instability; South Asia