Political instability and sustainable growth Empirical validation with Solow model and a Probit model for the Tunisian case

Badry Hechmy

Abstract


This paper tries to study a main component of governance that is political stability and its relationship with economic growth and other macroeconomic variables. Our choice for this topic is justified firstly by the fact that the economic growth of Tunisia knows a significant drop in the years that follow the political disturbances, secondly to understand the main determinants of political instability.

Theassumption is that the political instability has a negative impact on the growth of real gross domestic product (GDP). To test this hypothesis, we will use a Solow model, which is the starting point of almost all analyzes of economic growth according to Romer. Political instability variable was introduced as an indicator variable that takes the value 1 if there is political instability and 0 otherwise. The estimate of the Solow model over the period 1970-2014 shows that the presence of political instability in a Tunisian fiscal year will reduce the economic growth rate of 0.047 percentage points.

Besides estimating a Solow model,a Probit model is estimated to examine the impact of GDP, Labor Force growth and Capital on the likelihood that Tunisia is instable.The Probit model indicates that Political Instability and Capital are moving in opposite direction. And that it operates in the same direction with the growth Labor Force and GDP.The latter result is surprising; however it may be explained by the fact that income distribution is uneven. Any increase in national wealth could generate internal disorders that can lead to political instability.


Keywords


Economic Growth, Solow Model, Probit Model, Political Instability, Maximum Likelihood.

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