Revisiting the Link Between Political and Financial Crises in Africa

Abstract

There is an important information deficit on political and financial risks in Africa. This paper fills this gap by compiling a unique database of financial (sovereign, banking, currency, expropriation) and political crises (regime changes, ethnic and revolutionary wars, genocides, armed conflicts) covering 53 African countries between 1965 and 2008. We employ a new methodological framework to disentangle cross-crisis from temporal contagion effects. This allows us to extend to Africa a number of insights from the literature on financial crises (e.g., the mutual contagion effects between banking and currency meltdowns). Importantly, and critically for a study devoted to Africa, political upheavals are of modest relevance to predict financial crises. These results may be reconciled with previous literature given our original focus on Africa and our event-based approach of financial and political risks.