Abstract
AbstractAn extensive literature has examined the economic effects of non‐violent political instability events. Nonetheless, the issue of whether economies react differently over time to such events remains largely unexplored. Using synthetic control methodology, which constructs a counterfactual in the absence of political instability, we estimate the output effect of 38 regime crises in the period 1970–2011. A crucial factor is whether crises are accompanied by mass civil protest. In the crises accompanied by mass civil protest, there is typically an immediate fall in output which is never recovered in the subsequent five years. In crises unaccompanied by protest, there are usually no significant output effects. It is unclear, however, whether mass civil protest causes the greater fall in output or is simply an indicator of a more severe political crisis.
Highlights
The sample is from the beginning of the data set until five years after the political instability event, so the intercept c is a measure of the average difference before the event
We have used synthetic control methodology to estimate the effects of certain types of political instability up to a five-year horizon
We have focused on mass political instability events, defined as regime crises accompanied by mass civil protest, and compared them with regime crises where mass civil protest was absent
Summary
The contribution of the present paper is two-fold: (1) It makes use of the recently developed synthetic control methodology (SCM) to estimate the output effect of political instability events over the ensuing five years; and (2) it shows that significant non-violent regime crises typically have negative output effects only if accompanied by mass civil protest.
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