They looked at factors like cabinet changes — the number of times in a year a new leader is named or half the cabinet is replaced — as a proxy for political instability.
They found “strikingly conclusive” results that instability brings down average GDP per head rates significantly, by 2.4 percentage points.
In a climate where our own economic relationships are still in a state of embarrassing and damaging economic flux, it’s still worth pointing out Aisen and Veiga’s conclusions that the “greater uncertainty regarding future economic policy... is likely to adversely affect investment and, consequently, physical capital accumulation”.
The increasing uncertainty “may lead to less efficient resource allocation” and hamper research and development in the private and public sector, leading in turn to slower technological advances and lower productivity.
According to the IMF, “human capital” is adversely affected because the prospect of instability may give people less incentive to invest in education. Then there’s the potential impact of violence, civil unrest and strikes on growth. Despite the warnings that having another referendum on EU membership could unleash new forces of right-wing extremism, we’re not quite there yet, fingers crossed.
The authors, whom I assume didn’t have the UK in mind when the paper was written, suggest “governments in politically fragmented countries with high degrees of political instability need to address its root causes and try to mitigate its effects on the design and implementation of economic policies”.
But May’s “administration” isn’t in any position to address root causes of instability; it merely tends to exacerbate them with its current brinkmanship.
In a riven nation who can say whether any government of any colour will emerge with a steady parliamentary majority in the next decade?
We’ll have to get used to political instability, and the lower growth that comes with it.
