Acta Univ. Agric. Silvic. Mendelianae Brun. 2011, 59(2), 81-88 | DOI: 10.11118/actaun201159020081

Political instability and economic growth: an empirical evidence from the Baltic states

Ladislava Grochová, Luděk Kouba
Ústav ekonomie, Mendelova univerzita v Brně, Zemědělská 1, 613 00 Brno, Česká republika

For more than last 20 decades, new political economics has been dealing with theories of economic growth (for example influential contributions by Mancur Olson, Dani Rodrik). However, less attention has been paid to their empirical verification. The new political economics growth theory defines some factors that are necessary for economic growth among which political stability. Our aim is to test the theory focused on political stability empirically in order to enrich the studies with recent European results. The paper uses a single-equation model to reject a hypothesis that political stability is a necessary condition for economic growth finding a relationship between economic growth and political instability. A demonstration that political stability is not a crucial factor for economic development in general then represents the main goal of the contribution. There are distinguished two types of political instability - elite and non-elite - in topical literature. While non-elite political instability concerns about violent coups, riots or civil wars, elite political instability is represented with "soft changes" such as government breakdowns, fragile majority or minority governments. A number of government changes is used as a proxy of elite political instability. The disproof of the hypothesis is demonstrated on data from the Baltic states where number of government changes takes place and still fast economic growth could be seen within last two decades. Since it is shown that political instability has almost no impact on economic growth, we consider the hypothesis regarding a necessity of political stability for economic development to be only a specific non-generalizable case.

Keywords: new political economics, political instability, elite political instability, production function, single equation, Baltic states
Grants and funding:

This article is the result of research project supported by the Ministry of Education, Youth and Sports of the Czech Republic no. VZ 6215648904 "The Czech Economy in the Process of Integration and Globalization, and the Development of Agricultural Sector and the Sector of Services under the New Conditions of the Integrated European Market", thematic area 01 "Macroeconomic and microeconomic performance of the Czech economy, and the Czech government's econ-political measures in the context of the integrated European market".

Received: December 17, 2010; Published: July 7, 2014  Show citation

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Grochová, L., & Kouba, L. (2011). Political instability and economic growth: an empirical evidence from the Baltic states. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 59(2), 81-88. doi: 10.11118/actaun201159020081
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