اقتصاد باثبات (Dec 2022)
Political Violence and Its Economic Consequences: Evidence from Selected Countries of the Middle East and North Africa
Abstract
Uncertainty caused by various economic and non-economic factors has a negative impact on the macroeconomic performance. Macroeconomic instability reduces the predictability of the macroeconomic situation and leads to improper allocation of resources, reduction of investment and economic growth. One of the most important factors affecting economic stability is political violence. Political violence is the deliberate use of power to achieve political goals. The purpose of this research is to investigate the economic impact of political violence in 20 selected countries of the Middle East and North Africa during the period from 2010 to 2020 using the panel vector autoregression method. The variable of political violence is the sum of inter-state violence, inter-state war, internal violence, civil war, ethnic violence and ethnic war. Macroeconomic instability index is calculated using inflation rate, unemployment rate, real exchange rate and exchange rate. The findings show that political violence has a positive and significant effect on macroeconomic instability in selected countries of the Middle East and North Africa. Political violence directs expenses towards non-developmental use, which leads to a decrease in productivity and job opportunities. Also, in order to cover the expenses of the war, internal resources should be used, including the printing of new banknotes, increasing taxes and internal borrowing, and external sources, including borrowing from international sources. Therefore, political violence causes an increase in inflation, unemployment and debt, which indicates an unfavorable macroeconomic environment. In addition, government spending, financial development, money supply and institutional quality have a positive and significant effect, and globalization and democracy have a negative and significant effect on macroeconomic instability.
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