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POLITICAL INSTABILITY AND ECONOMIC

GROWTH: AN EMPIRICAL EVIDENCE
FROM THE BALTIC STATES
L. Grochova, L. Kouba
Received: December 17, 2010
Qamr2summary
Our aim is to test
the theory focused on political stability empirically in
order to enrich the studies with recent European
results.
There are distinguished two types
of political instability – elite and non-elite – in topical
literature. While non-elite political instability
concerns about violent coups, riots or civil wars, elite
political instability is represented with “so_
changes” such as government breakdowns, fragile
majority or minority governments. A number of
government changes is used as a proxy of elite political
instability.
For more than last 20 decades, new political economics
has been dealing with theories of economic
growth (for example infl uential contributions by Mancur
Olson, Dani Rodrik). However, less attention
has been paid to their empirical verifi cation. The new
political economics growth theory defi nes
some factors that are necessary for economic growth
among which political stability.
Our argumentation is based on following assumptions
about the extent of political stability within
the group of successful transition countries. The Visegrad
states, Slovenian and the Baltic states are

In this paper.stable and safe democratic countries without threats of civil wars or violent coups. however. That is why we show that even in relatively politically instable economies in the elite sence the economic growth has been extraordinarily fast since 1990. For the empirical part a single-equation approach was chosen to exam the infl uence of elite political instability on economic growth in the Baltic states. Vol. we off er an evidence of our thoery on the case of the Baltic States where high growth rates have been achieved during the last two decades. OZLER. and labour as independent variables and government changes as an elite political instability dummy variable. 2010: How does political instability aff ect economic growth? NIPE Working Papers 5/2010.. The case of the Baltic states so positively shows that countries can grow very fast even in the environment of signifi cant elite political instability. REFERENCES AISEN. they experience elite political instabilty. S. 1(2): 189– . and VEIGA.. The model has a form of augmented production function and includes growth rates of investments. N. P. their political environment being characterized with a high number of cabinet changes.. ALESINA. A. NIPE . J.Universidade do Minho. 1996: Political Instability and Economic Growth. A. Journal of Economic Growth. The data resulting from estimations applying GMM and GLS because of endogeneity and autocorrelation problems are statistically signifi cant for all three countries and confi rm our hypothesis that elite political stability is a necessary condition for economic growth. and SWAGEL. ROUBINI. F. exports..

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