Two to Tangle: Financial Development, Political Instability and Economic Growth in Argentina (1896-2000)
with Menelaos Karanasos and Bin
Tan
October 2008
This paper investigates the effects of financial development and political
instability on economic growth
in a power-ARCH framework with data for Argentina from 1896 to 2000. Our
findings suggest that
(i) informal political instability (e.g., guerrilla warfare) has a direct
negative impact on growth; (ii) formal
instability
(e.g., cabinet changes) has an indirect (through volatility) impact on
growth; (iii) the effect of financial development
is positive and, surprisingly, not via volatility; (iv) the informal
instability effects on growth are much larger in the
short- than in the long-run; and (v) the impact of financial development
is negative in the short- but positive
in the long-run.
