Spatial Effect of Political Risk on Economic Growth in Africa

Oumarou Zallé

doi:10.4236/me.2017.812093

Abstract

The purpose of this article is to highlight and quantify the spatial effects of political risk on economic growth among African countries. We design a spatial model of growth derived from the Mankiw-Romer-Weil model by introducing spatial interactions. Spatial spillover effects occur because political risk incurred by a country influences not only the country’s economic growth, but also the economic growth of other geographically close countries through a spatial multiplier effect. The econometric estimates concern a sample of 34 African countries from 1985 to 2015. Results show that the economic performance of African countries is negatively interdependent, and the spatial interdependence passes through political risk. It is indicated that natural resources and religious tensions have direct negative effects on growth. On the other hand, democracy and governmental stability have positive direct effects on economic growth but impede the economic development of neighboring countries. However, external conflicts are not necessarily harmful to neighboring countries. These dynamics illustrate the complexity of conflicts and political instability in Africa.

Highlights

Since 2000, security and good governance have been the subjects of renewed interest in development economics
Spatial spillover effects occur because political risk incurred by a country influences the country’s economic growth, and the economic growth of other geographically close countries through a spatial multiplier effect
Results show that the economic performance of African countries is negatively interdependent, and the spatial interdependence passes through political risk

Summary

Introduction

Since 2000, security and good governance have been the subjects of renewed interest in development economics. The effectiveness of any economic policy is highly dependent on the institutional and political environment in which it is implemented [1]. It is generally accepted that political instability is detrimental to private investment and, to economic growth. Political instability is defined as the propensity for a government to collapse [2], which is how political risk shortens the temporal horizon of policy makers, leading to suboptimal macroeconomic policies. Such risk is associated with frequent changes in economic policy and volatility in economic growth rates [3]

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Conclusion