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

Abstract

GROCHOVÁ, L., KOUBA, L.: Political instability and economic growth: an empirical evidence from the Baltic states. Acta univ. agric. et silvic. Mendel. Brun., 2011, LIX, No. 2, pp. 81-88 For more than last 20 decades, new political economics has been dealing with theories of economic growth (for example infl uential contributions by Mancur Olson, Dani Rodrik). However, less attention has been paid to their empirical verifi cation. The new political economics growth theory defi nes 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 fi nding 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 "so 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 specifi c non-generalizable case. new political economics, political instability, elite political instability, production function, single equation, Baltic states For more than last 20 years, new political economics has been dealing with theories of economic growth. However, less attention has been paid to their empirical verifi cation. The new political economics growth theory defi nes some factors that are necessary for economic growth among which political stability. We propose to test the theory focused on political stability empirically in order to enrich the studies with recent European results.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 "so changes" such as government breakdowns, fragile majority or minority governments. We don't doubt the importance of general political stability for successful economic development. Nevertheless, we don't agree that elite political instability can be understood as an insuperable obstacle for it. In other words, our aim is to reject the hypo...

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