Casos Africanos - Sorbonne

8/12/2019 Casos Africanos - Sorbonne

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Political instability, political regimes and economic performance inAfrican countries

Jean-Claude Berthlemy*, Cline Kauffmann+, Laurence Renard and Lucia Wegner+

First draft, 11 March 2002

Abstract

This paper is based on the work carried out for the African Economic Outlook (2002),joint report recently published by the African Development Bank (ADB) and the OECDDevelopment Centre. The original data are computed from the weekly newspaperMarchs Tropicaux et Mditerranens.The paper uses the methodology first proposed by

Dessus, Lafay and Morrisson in A Politico-economic Model for Stabilisation in Africa(Journal of African Economies, 1994). The qualitative information obtained fromMarchs Tropicaux et Mditerranensis used to construct three indicators referring to:

1. Political instability: based on occurrence of strikes, demonstrations, violence andcoup dtat.

2. An index of the softening of the political regime derived from information on releasesof political prisoners, measures in favour of human rights, decisions promotingdemocracy, lifting of bans on demonstrations and public debates.

3. A measure of hardening of the political regime based on incarcerations of opponents,measures threatening democracy such as dissolution of political parties, violence

perpetrated by the police and the banning of demonstrations or public debates.

The resulting database covers 22 African countries over the ADB 5 sub-regions of Africain order to reach a sample representative of the continent, on a weekly basis from January1996 to December 2001. Quarterly data is then computed to study the relationshipbetween political unrest and the nature of the political regime while annual data is used toinvestigate the political and economic dynamics.

The paper suggests a strong correlation between conflict and political regime. It alsoconveys the idea that economic performance in Africa interacts deeply with politicalfactors.

* Universit Paris I Panthon Sorbonne, France and OECD Development Centre+OECD Development Centre Universit Paris I Panthon Sorbonne, France

The OECD, the OECD Development Center and their member governments are notresponsible for the 4opinions expressed in this paper.


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1. Introduction

Preventing conflicts is becoming a widespread objective in Africa as recent international

evidence show an increase of crime and violence in developing countries and negative

spillovers for neighboring economies are highlighted. Both at the international level

(through the recent focus of World Bank on conflict and the work on helping prevent

violent conflict at OECD Development Assistance Committee, DAC) and regionally

(through the NEPAD, New Partnership for African Development), awareness of the

dreadful effects of conflict is rising and the need for prevention tools is underlined.

Preventing conflict requires a good knowledge of the interaction between the economic

sphere and the political one, as well as the dynamic of political decisions. It impliesaccess to indicators that are informative about the risks of running into conflicts and that

allow a close monitoring of fragile/unstable countries. DAC relates those risk indicators

to the following aspects:

- loss of political space for opposition, civil society and media

- social, economic and political exclusion

- unemployment, especially among youth

- impoverishment

- increasing inequalities

- human rights violations

- increasing insecurities

- migratory flows

In this paper, we present a set of three political indicators based on the series of events

displayed below. Those indicators allow us to investigate on a quarterly basis the

dynamic of political institutions, their adaptation to social and political unrest and the

resulting impact on economic performance for 22 African countries over a 6-year period,

from 1996 to 2001. The objective is not to address the issue of conflicts in countries that

are already affected, but to offer early warning and risk indicators for countries that are


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still relatively stable. As such, none of the countries covered by the paper are in a

situation of open war, although one or two might drift towards such a situation.

1. Political instability: based on occurrence of strikes, demonstrations, violence and

coup dEtat.

2. An index of the softening of the political regime derived from information on releases

of political prisoners, measures in favour of human rights, decisions promoting

democracy, lifting of bans on demonstrations and public debates.

3. A measure of hardening of the political regime based on incarcerations of opponents,

measures threatening democracy such as dissolution of political parties, violenceperpetuated by police and banning of demonstrations or public debates.

As opposed to the traditional literature on this issue, our approach is not static.

Traditionally, the empirical papers consider the impact of political characteristics on the

economic performance or the politico-economic characteristics of countries at war. Here,

we investigate the responses of the institutions to political and social unrest, namely

whether the government chooses to respond by a softening or a hardening of the regime,

and their implications at the institutional level and for economic performance.

The traditional approach is also partial as it mainly considers causality of political factors

on economic performance, more rarely the reverse and even more rarely the correlation

between institutional variables. The study of political factors is usually left to political

sciences. This paper deals with the dynamic of political responses to political instability

as well as their consequences for economic growth. We use causality tests to investigate

the relationship between instability and the softening/hardening of the regime.

Most empirical papers on political environment and economic performance rely on yearly

and aggregated data as a result of the constraint on macro-economic data. However, our

dataset allows us to follow the countries on a quarterly basis. It also provides us with


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more detailed information on political institutions as the data are computed from events

and do not derive from the perception of the democratic profile of the power.

In section 2, we survey the previous literature. Section 3 provides details on the quarterly

data set on political events that we have built. Section 4 is devoted to tests of causality

between political instability and political decisions made by the governments; it shows a

bi-directional causality between political troubles and political hardening by the

government. Based on annualized data, section 5 studies complementary economic

determinants of political instability while section 6 studies the reverse impact of political

instability on investment and economic growth. Section 7 concludes.

2. The literature on political environment and economic performance

The literature on the subject is relatively abundant on 2 aspects: civil wars and the impact

of political background on economic performance. Whereas the first kind of papers

tackles the issue of the incidence of conflicts, the causes and consequences of wars in

countries that are affected, the second type of paper investigates the interaction between

economic performance and political developments. Since this paper does not focus on

countries at war, it then belongs to the second strand.

Political context and economic performance

Since North (1991), several economic papers have underlined the importance of the

political environment for promoting economic development. Sound political institutions

are believed to foster economic transactions mainly by reducing risks. However,

controversies arise on what sound political institutions means and on the channels

through which they impact economic performance.

The uncertainty concerning the concept and the impact of democracy


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Of the two questions that arise from the debate on sound political institutions, one

focuses on the generic notion of democracy as a synonymous for sound institutions. But,

although democracy has been largely studied in the economic literature there is little

agreement on its impact on economic performance. Barro (1991) and zler and Rodrik

(1992) disclose a significant and positive correlation between political freedom and

economic performance. By contrast, Alesina and Perotti (1994) can not highlight any

impact of democracy on growth, while Barro (1996) suggests a non-linear relationship,

too much and not enough democracy being harmful to growth.

Such uncertainty is largely due to the fact that the concept of democracy covers many

different realities and that apart from sharing a common poll system, democracies differ

widely in their characteristics. As democracy, as well as dictatorship, reveals itself toobroad a concept, one has to go down to the desaggregated features of the political regimes

to be able to pin down properly the impact of political environment on economic

development. In this paper, we consider three features of political institutions: hardening

of the regime, softening of the regime and political instability, of which only the last one

has been studied so far in the literature.

The role of political instability

There is almost a consensus concerning the impact of political instability on growth,

although the concept of instability itself is rather ambiguous. It covers both legal changes

of heads of state and governments and violent take-overs. Whereas the first one refers to

political changeover, the second one is more appropriately related to instability and has a

broadly acknowledged negative impact on economic growth. That second concept

includes elite instability, as defined by Fosu (1992) 1, as well as less dramatic events

linked to social unrest (demonstrations, political violence). Considering data availability,

this paper mainly tackles the second sense of the concept of political instability.

1It comprises for instance coup dEtat as well as political plots.


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The negative correlation between political instability and growth can be explained

through impaired production factors accumulation and efficiency, as underlined by Fosu

(1992) and Dixit and Pindick (1994). Instability prevents political institutions from

ensuring property rights, which in turn increases the probability that returns on

investment are expropriated. As a result of higher risk, less investment is undertaken.

Fosu (1992) shows that the same applies to human capital accumulation, as political

instability might cause brain drain. In extreme cases of instability like revolutions or

coups dtat, Fosu (1992) argues that breaks in the production process might occur,

reducing directly the level of GDP. Moreover, the impact on production-factor

accumulation can also be accompanied by a negative influence on their productivity.

Indeed, the effect of investment and human capital accumulation on growth performance

is likely to depend on the institutional context as efficiency of production factors iscertainly improved in a stable environment.

Another channel through which political instability affects economic performance relates

to political economy and consists in the reduction of time horizon that politicians might

suffer when instability is high. In a context of high instability, politicians tend to avoid

structural reforms and lead wait-and-see policies instead in order to limit disagreement

with the population and the other political parties. A government can also choose to

pursue the same economic policy in spite of all the evidence, in order to defeat its

opponents. Such schemes have been developed in the political economic literature by

Alesina and Tabellini (1989), Cukierman, Edwards and Tabellini (1992) and Ozler and

Tabellini (1991). Following the same perspective, Clague, Keefer, Knack and Olson

(1996) consider that short-term perspectives are not likely to help policy makers keep

their commitments, while Murphy, Shleifer and Vishny (1991) and Terrones (1990)

underline that a government threatened by instability may be tempted to use corruption to

insure the loyalty of the bodies that might help it to remain in power like the police, the

army, the administration...

Despite the diversity of the datasets as well as the methodologies used, the empirical

studies suggest a significant negative correlation between political instability and


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economic growth (Barro, 1991, Alesina, zler, Roubini and Swagel, 1996, Azam,

Berthlemy and Calipel, 1996). Guillaumont, Guillaumont and Brun (1999) goes even

further, showing that political instability combined with trade instability are the main

factors behind the poor economic performance of African countries on 1970-1990.

The channels

Concerning the channels, there is debate whether institutions affect economic

performance directly or more indirectly, through production-factor efficiency and the

establishment of an environment conducive for business. The inconclusive impact of

democracy on growth points towards an indirect influence, as underlined by Tavares and

Wacziarg (1997). The authors then turn towards more complex models than thetraditional Barro one equation specification to justify the interlink between the

economic and the political spheres. To that purpose, they systematically investigate nine

channels through which they assume democracy might affect growth, using a

simultaneous equations model. Two channels emerge as highly influential: through

human capital accumulation and through political stability.

Fosu (1992) insists on the role of human capital accumulation as the channel throughwhich political instability affects growth. He proves his point using multiplied

(interactive) variables in the specification. De Haan and Siemann (1996) show that the

impact through investment prevails since adding up and withdrawing this variable from

the equation heavily influence the results. However, Guillaumont, Guillaumont and Brun

(1999) question these results in the case of African countries and show that political

instability, defined as a combination of coups dtat and foreign/civil wars, directly

affects the residuals of the growth equation.

The determinants of political context

The channels are not the only issues at stake in the debate about political institutions and

economic performance. Causality is also a major concern. Limongi and Przeworki (1993)


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justify the unclear impact of democracy on economic performance through

methodological problems. They argue that it is impossible to compare the incidence of

democracy and dictatorship holding everything else constant providing that dictatorships

develop more easily when the economic situation is difficult. But because most studies

limit the analysis to the impact of political factors on economic performance, completely

overlooking one side of the relationship, they face simultaneity and endogeneity

problems. By contrast, Limongi and Przeworki (1993) suggest that the economic context

has a significant influence on the development of the institutions and might help

justifying the settling of democracy.

The economic determinants of institutions

The economic determinants of the political context have been little investigated in the

economic literature. After Lipset (1959), economic development has been seen as an

important factor in promoting political stability and democracy according to the argument

that in wealthy societies, redistribution conflicts are defused. By contrast, the correlation

between economic growth and political context remains unclear. While weak economic

performance is likely to spark redistribution conflicts, a strong growth might destabilise

the economy. At the empirical level, Barro (1996) and Tavares and Wacziarg (1997)confirmed the Lipset hypothesis on a cross section of countries and on panel data

respectively while Alesina, zler, Roubini and Swager (1996) did not find any evidence

of a negative impact of a weak growth rate on political stability, underlining the

contradictory effects of growth.

The political factors

Among the political determinants of the institutional environment, democracy is

considered to help strengthen political stability. Democracy involves rules and opposition

force that reduce the risk of arbitrary decisions. Clague, Keefer, Knack and Olson (1996)

underline that a democratic system is more likely to ensure the respect of property rights

and the enforcement of contracts. Going back to Weber (1922), one can also argue that


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turnovers under democracies are less likely to bring political unrest since they are

regulated by a legal framework. However, if democracy strengthens political stability,

political stability is symmetrically more likely to help democracy settle. Few empirical

studies tackle the interaction between the economic and the political spheres at a global

level, taking into account the correlation between political factors. Among those

frameworks, Tavars and Wacziarg (1997) and Poirson (1998) confirm the negative

correlation between democracy and political instability.

3. Construction of political indicators

In order to both follow through the political developments in the countries under study in

the African Economic Outlook (2002), recently published by the African DevelopmentBank and the OECD, and to assess the interaction between the institutional context and

economic performance, three political indicators were computed. They were built on

information taken from the weekly newspaper Marchs Tropicaux et Mditerranens

according to a methodology first proposed by Dessus, Lafay and Morisson (1994). The

qualitative information derived from the newspaper was either computed as 0-1 variables

with 0 being the non-occurrence of the event and 1 its occurrence or as 4-value indicators

(with 0: non-occurrence, 1: occurrence but weak intensity, 2: medium intensity and 3:

strong intensity). From these indicators, the three following main political indexes were

constructed: an index of political instability and social unrest, a measure of the softening

of the political regime and one of its hardening.

Political instability

Strikes

0 = non-occurrence,1 = 1 strike or number of strikers lower than 1 000 (included),

2 = 2 strikes or number of strikers between 1 000 and 5 000 (included),

3 = 3 strikes or number of strikers strictly higher than 5 000.

Unrest and violence (number of dead and injured)

Dead 0 = none,


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1 = between 1 and 10 (not included),


3 = higher than 100.

Injured 0 = none,

1 = between 1 and 50 (not included) or if the number of dead is between 1

and 10,

2 = between 50 and 500 (not included) or if the number of dead is between

10 and 100,

3 = higher than 500 or if the number of dead exceeds 100.

Demonstrations

0 = non-occurrence,

1 = 1 demonstration or number of strikers lower than 5 000 (not included),2 = 2 demonstrations or number of strikers between 5 000 and 10 000 (not included),

3 = 3 demonstrations or number of strikers higher than 10 000.

Coup dtat and attempted coup dtat

Softening of the political regime

Lifting of state of emergency

Releases of political prisoners

Measures in favour of human rights

Improvement of political governance (fight against corruption)

Relinquishment of political persecution, rehabilitation, return from exile

Political opening (measures in favour of democracy)

1 = Discussion with the opposition,

2 = Entry of the opposition to power,

3 = Opening of a regime to elections.

Lifting of bans on strikes or demonstration

Lifting of bans on press or public debates


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Hardening of the political regime

State of emergency

Arrests, incarcerations

0 = non-occurrence,1 = between 1 and 10 (not included),


3 = higher than 100.

Additional resources for the police, propaganda or censorship

Toughening of the political environment (expulsions, dismissals, curfew, dissolution

of political parties)

Violence perpetuated by the police (number of dead and injured)Dead 0 = none,



3 = higher or equal to 100.

Injured 0 = none,



3 = higher or equal to 500.

Prosecutions, executions

Bans on strikes and demonstrations

Bans on press or public debates

Closing of schools

Forced demonstrations

The data were collected for the countries covered by the African Economic Outlook

report (2002) as tools to precisely follow through the political developments in those

countries. The sample is then highly driven by the reasons that prevailed in the choice of

the report coverage. That coverage includes Botswana, Burkina Faso, Cameroon, Chad,

Cte dIvoire, Egypt, Equatorial Guinea, Ethiopia, Gabon, Ghana, Kenya, Mali,


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Mauritius, Morocco, Mozambique, Namibia, Nigeria, Senegal, South Africa, Tanzania,

Uganda and Zimbabwe. The most important countries in each of the continents five

regions as defined by the African Development Bank2are among them as well as smaller

countries to make the sample more representative. Nations involved in civil war have

been left out mainly because of logistical problems. Consequently Central African

countries are the least represented countries among Sub-Saharan countries. Similarly, the

reports look at North Africa, economically rather different from the rest of Africa, is

limited to the two strongest economies: Egypt and Morocco. Overall, the sample accounts

for 2/3 of the continents GDP and !of its population.

The resulting database, firstly computed on a weekly basis corresponding to the

periodicity of Marchs Tropicaux et Mditerranens , was then aggregated on aquarterly basis in order to proceed with the statistical analysis. The weekly format would

not be appropriate because of a lack of variance as the information collected on such a

desagregated basis is very scarce.

A principal component analysis was undertaken in order to determine the set of relevant

weights for the qualitative variables within the synthetic indexes. To that purpose, the

dimensions of the different indicators were made homogenous. All 4-value indicators

were split into 3 binary variables with one representing the occurrence of the event with

weak intensity, the second binary indicator including weak and medium intensity and the

third one the strong intensity.

Table 1 - Weights in Conflicts

low medium high

Strike 0.53 0.55 0.59Dead 0.76 0.79 0.79Injured 0.77 0.80 0.80

Demonstration 0.61 0.63 0.64Coup d'tat and attempt 0.19

2The five regions under consideration are North Africa, Western Africa, Central Africa, Eastern Africa andSouthern Africa.


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Table 2 - Weights in Softening of the political regime

low medium highLifting of state of emergency 0.05Releases of political prisoners 0.19Measures in favor of human rights 0.14Improvement of political governance 0.32

Relinquishment of political persecution 0.11Political opening 0.95 0.96 0.96Lifting of bans on strikes or public debates 0.14

Table 3 - Weights in Hardening of the political regime

low medium high

State of emergency non-significantViolence perpetuated by the police: Dead 0.23 0.26 0.26 Injured 0.91 0.92 0.93Arrests 0.43 0.47 0.47Additional resources for the police non-significantToughening of the political environment 0.20

Prosecutions, executions 0.09Bans on strikes and demonstrations 0.47Closing of schools 0.20Forced demonstration non-significant

4. The interaction between political instability and political hardening

Political instability is in practice the result of a combination of events that leads to social

and political discontent. Among those factors, the political behaviour of the government

plays a leading role. Very often, discontent is spurred by government decisions against

political freedom. As a matter of fact, between 1996 and 2001, political tensions were

highly correlated with more repressive political decisions in the countries under study.

However, a reverse causation is also plausible if governments themselves decide to

harden their policies in response to political dispute. In order to test these hypotheses, we

have performed Granger tests, which show that the correlation between political

instability and hardening of the regime is in fact bi-directional. As a consequence,political hardening and political instability reinforce each other. However, no correlation

and no causality are found between instability and softening of the political regime

(results not shown).


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These tests should be preferably performed at the national level, considering that each

political system has its own dynamic behaviour. However, the number of observations

constrains our causality tests. Therefore, we combine a global test, assembling all 22

countries, and tests performed at the regional level. Most of these tests provide significant

results. The smallness of our North African and Central African samples helps explain

the lack of significance of the tests for these regions.

Table 4 Results of the Granger causality tests

Instability => Hardening Hardening => InstabilitySampleNumber of

observations

Opt. lag F-stat Opt. lag F-stat

Overall 462 3 16.2 (.00) 3 15.1 (.00)

Western Africa 138 1 7.3 (.01) Non significant

Eastern Africa 115 1 13.4 (.00) 2 6.8 (.01)

Central Africa 92 Non significant Non significant

South Africa 115 3 15.4 (.00) 3 22.4 (.00)

North Africa 46 Non significant Non significant

Table 5 reports the corresponding estimated parameters for both causal regressions run onthe overall sample. These results suggest a bigger impact of political hardening on

instability than of instability on hardening: computed long term parameters are equal to

1.33 for the impact of hardening on instability and only 0.09 for the reverse impact. The

smallness of the latter parameter suggests that the interaction between both variables will

usually end up in a stable equilibrium, rather than in an unstable one, which would drive

the economy in a vicious circle. This means that the mechanism uncovered by our data

does not, in itself, lead to open conflicts. It may, however, exacerbate conflicts arising

from political and economic shocks or mismanagement.


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5. Economic factors explaining political instability

Our results in previous section are only partial, as other variables may explain political

instability. It is in particular tempting to test whether economic variables affect political

instability. This is what is attempted in this section, again based on the data collected bythe African Development Bank and the OECD for producing the African Economic

Outlook. In doing so, we face an inevitable limitation, which is the lack of quarterly

economic data. Therefore, we use a panel data estimation, based on yearly data (1996-

2001) for our 22 countries. Results are reported in Table 6.

Table 6 - Political instability

Political instability

Hardening(-1) 1.49 (6.02)Growth (value) -15.56 (-1.81)Western Africa 7.27 (2.03)Southern Africa 5.73 (1.53)C .84 (.2)

Nb of observations 110Adjusted R" .40T-stat in parenthesis.

As seen earlier, political instability is partly driven by the hardening of the regime. It is

worth noting that the lagged value of political instability does not have a significantimpact on its current level when included in the regression, while it was significant on a

quarterly basis. This suggests that there is only a short period of persistence of political

instability. Moreover, the parameter of Hardening, 1.49, is close to the long run value of

the impact of Hardening on Instability computed from Table 5 (1.33). Although they are

based on data with different frequencies, our analysis in this section and in previous

section are therefore consistent.

In addition, the econometric test suggests that political factors are not only affected by

political shocks but also by economic performance since growth displays a significant

impact on political instability. Faster growing countries are less likely to experience

political instability. While the literature on the subject does not provide any clear results,

our tests show that for the African countries represented in our sample, growth has


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softened troubles instead of exacerbating them over the last 6 years. However, the

relevant economic performance estimator is not the GDP growth in volume, but an

indicator of growth in value, underlying the importance of shocks on revenues in

explaining the discontent of the population. The impact of volume growth is much less

significant (regression not shown).

6. Impact of instability on investment and growth

Going back to the ideas developed in the literature, one may want to check whether, in

our dataset, political instability affects growth performance. The econometric tests carried

out on our sample suggest that there is no direct impact of political factors (instability,

hardening or softening) on growth but two indirect channels: through private investmentand through a break in the coefficients in the growth equation.

Table 7 - Private investment

Private Investment

Growth 2.3 (3.7)Instability -.01 (-1.8)Western Africa .12 (.84)Eastern Africa .24 (1.65)Southern Africa .09 (.64)Northern Africa .32 (1.45)c -2.20 (-14.2)

Nb of observations 132Adjusted R" .19T-stat in parenthesis.

Political instability has a direct negative impact on the accumulation of private

investment. This effect does not hold for public investment highlighting the fact that the

two types of investment respond to different incentives. Private investment is highly

sensitive to the institutional environment and the performance of the economy, hencejustifying that both growth and instability are highly significant in the regression. On the

contrary, public investment is a tool in the hands of the government to compensate for the

lack of private investment and as such may have counter-cyclical behaviour.


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Chart 2. Private Investment and Political Tension

Political instability affects growth by hindering physical capital accumulation. It may also

affect growth indirectly through the returns of investment, or directly through total factor

productivity. Although political instability has no linear impact on growth (result not

shown), a simple Chow test shows that the structural parameters of the growth equation

are highly dependent on the level of troubles experienced by the countries. The break in

the coefficients was tested in a systematic way by using all levels of political instability

available in the database as potential thresholds. The Chow test was then performed on

the sub-samples generated by such thresholds. It provided us with a series of Fisher

statistics that helped us decide the relevance of a structural break and its occurrence in

terms of the level of political instability. The cut-off point was inferred for the highest

Fisher statistics. As a result, the strongest difference was found between countries with

and without instability, rather than between countries with different levels of trouble.

Countries experiencing no political troubles display much higher returns to investment

(structural parameter around 0.13) than countries with troubles (0.03). As a consequence,

MauritiusSenegal

MozambiqueSouth Africa

Nigeria

Egypt

Cte d'Ivoire

Equatorial Guinea

Gabon

Chad

TanzaniaUganda

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00

political tension

privateinvestments


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not only political instability hinders physical capital accumulation, it also alters its

efficiency by reducing the impact of investment on growth.

Table 8 - Growth equation

Growth No troubles TroublesPrivate Investment .04 (3.9) .13 (2.2) .03 (5.4)North Africa .15 (6.6) .17 (2.8) .07 (4.7)Oil producer .05 (3.0) .04 (0.5) .03 (3.8)C .13 (4.9) .30 (2.3) .12 (8.7)

Nb of observations 132 36 96Adjusted R" .45 .48 .53Chow test F(2,128)=20.53 (.000)T-stat in parenthesis.

Consistently, the following graph shows clearly that over the period under study the

trouble-free countries have experienced faster growth rates than the countries with

political unrest. The only counter-example is 1996 for which there is no evidence of

significantly different growth rates for both samples.

Chart 3. Economic growth and political instability

0

1

2

3

4

5

6

7

8

1996 1997 1998 1999 2000 2001

No troubles troubles


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7. Concluding remarks

This paper aimed at providing tools to both follow through and assess the dynamic of

political institutions, their adaptation to political unrest and the resulting interaction with

economic performance. Those tools were designed in the context of the African

Economic Outlook project on a sample of 22 African countries over 1996-2001 and

encompass three political indicators: political instability, hardening and softening of the

regime. Simple descriptive analysis and econometrics on these indicators have clarified

the dynamics of institutions and highlighted a high degree of interaction between political

context and economic performance.

As illustrated by Granger causality tests, the 22 African countries covered in our analysishave experienced a bi-directional causality between political instability and hardening of

the regime, suggesting that not only social unrest might lead to a hardening of the

political stance of the government, but also that the behaviour of the leadership plays a

key role in explaining the discontent of the population. It also appears that political

softening does not create a reverse impact, suggesting the existence of a sort of hysteresis

impact of political hardening.

Moreover, the econometric tests carried out suggest that political developments are not

only driven by political events but are closely related to economic factors. For instance,

growth seems to have softened political instability for the 22 African countries of our

sample over 1996-2001, since countries that have experienced faster growth have been

less exposed to troubles.

Furthermore, the analysis on the reverse impact of political instability on investment and

economic growth reveals that political tensions have a direct negative impact on theaccumulation of private investments, affecting growth indirectly. Troubles also affect

growth indirectly through a significant negative impact on the productivity of investment.

It is shown, using a chow test, that countries experiencing no political instability display

higher returns to investment than countries politically very unstable.


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8. References

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A.Alesina and R.Perotti, The Political Economy of Growth: A Critical Survey of theRecent Literature, The World Bank Economic Review 8(3), pp 351-371, 1994

A.Alesina and G.Tabellini, External Debt, Capital Flight and Political Risk, Journal ofInternational Economics 27(3-4), pp 199-220, 1989

J.P.Azam, J.C.Berthelemy and S.Calipel, Risque Politique et Croissance in Afrique,Revue Economique, 47, pp 819-29, 1996

R.J.Barro, Economic Growth in a Cross Section of Countries, Quarterly Journal ofEconomics 106(2), 1991

R.J.Barro, Democracy and Growth, Journal of Economic Growth; 1(1), pp 1-27, March1996

C.Clague, P.Keefer, S.Knack and M.Olson, Property and contract rights in autocraciesand democracies, journal of Economic Growth 1(2), pp243-276, 1996

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