Political instability and economic growth in Africa

Abstract

Political instability, especially when it is of a violent nature, diminishes the productive, as well as the transactional capacities of the economy. This has adverse consequences for investment and thus future economic growth, a situation which in turn creates a fragile socio-political environment. The relationship between political instability and economic growth flows in either direction; political instability resulting in low economic growth (PI → LEG) and low economic growth resulting in political instability (LEG → PI). From the PI → LEG point of view, political instability influences the latter through a number of channels including the tax system, government spending and fiscal deficit, and inflation, all of which affect the level of investment, and thus influence future economic growth rates. From the LEG → PI point of view, low economic growth rates create conditions favourable for political instability. Reviewing economic and political stability data from 52 African countries for the period 1980 to 2013, the analysis demonstrates through some scenarios that higher and relatively more stable long-term (1980–2013) average growth rates correlate with lower levels of political instability in most of the pairwise comparisons of the countries. This is shown to be especially true for less resource-dependent countries. Empirical analyses of the data comprising all the countries under investigation find there to be a strong bi-directional direct relationship between political stability and the level of growth, and it is even more so the case for conflict-affected countries, unlike the non-conflict-affected countries. Further analyses using three-year averages of the data from 1981 to 2013 find that greater fluctuations in the growth rate adversely affect the level of political stability in especially conflict-affected countries, thus indicating a correlation between economic instability and political instability.