The economic impact of prolonged political instability: a case study of Fiji

Abstract

ABSTRACTIt has been long believed that prolonged political instability harms economic growth and development. This paper contributes to this growing empirical literature by studying the case in Fiji, which has faced a long period of political instability caused by a series of coups, military administrations and frequent changes in government since 1987. The impact of political instability on growth is hard to identify empirically because the counterfactual is unobserved and it is difficult to find valid comparisons. To solve this problem, we use the recently developed Synthetic Control Method to construct a counterfactual (or synthetic Fiji) that predicts the growth of a politically stable Fiji. The difference in per capita growth trajectories of the synthetic and the actual Fiji can thus be attributed as the impacts of political instability. Our findings show that the political instability caused by a series of coups since 1987 has indeed led Fiji onto a lower growth path, and that the accumulated effect is getting larger.