The growth impact of political regimes and instability: impirical evidences from Western Europe

Abstract

The main objective of this thesis is to investigate the reciprocal direct relationship between political regimes, political instability and economic growth. However, there is a lack of fit between the political and economic science especially when it comes to political determinants of economic growth. Thus, this thesis sheds further light on the question: To what extent do political regimes and their stability affects economic performance with reference to 20 Western European countries. A panel regression analysis is employed, by adopting multiple measures of government performance. The findings suggest that political regimes have an effect on economic growth and this effect is not directly dependent upon the broader governmental structure and political environment. This thesis further examines the puzzle of the nature between political instability and economic growth in Western Europe, by using both a more comprehensive measure of political instability than has previously been developed, and Greek growth cycles form 1919 to 2008 as a case to explore the nature of the researched issue. The findings propose that the relationship between political instability (PI) and economic growth is parabolic and fragile. Furthermore, this thesis supports the intuition that political instability can slow economic growth through increasing uncertainty in economic policies. The results illustrate that economic growth and political instability are jointly determined and that governmental changes plays no significant role on economic growth (with exceptions in the case study), especially after extended spells of political stability. It appears that what matters is the longevity of the polity itself and the specific forms of political instability. Moreover, by using Greece as a case, this thesis shows that there is a strong negative link between political instability and the volatility of the economic outcomes.