Measuring the impact of violence on macroeconomic instability: evidence from developing countries

Uncertainty induced by various economic and non-economic factors instigates macroeconomic instability. Macroeconomic instability, further, reduces predictability of a country’s macroeconomic situation, leading to misallocation of resources, reduction in economic growth and investment. This study aim...

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Bibliographic Details
Published in:Portuguese economic journal 2022, Vol.21 (1), p.3-30
Main Authors: Haroon, Rabia, Jehan, Zainab
Format: Article
Language:English
Subjects:
Comparative studies
Developing countries
Econometrics
Economic factors
Economic growth
Economic performance
Economic Policy
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Foreign exchange rates
Inflation rates
LDCs
Macroeconomics
Microeconomics
Original Article
Terms of trade
Uncertainty
Unemployment
Violence
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Summary:Uncertainty induced by various economic and non-economic factors instigates macroeconomic instability. Macroeconomic instability, further, reduces predictability of a country’s macroeconomic situation, leading to misallocation of resources, reduction in economic growth and investment. This study aims at investigating the impact of violence on macroeconomic instability in selected developing countries over the period of 1984–2016. In doing so, the study has used various dimensions of violence in order to test the size, significance and direction of each type of violence for macroeconomic instability. Macroeconomic instability index is computed by using terms of trade, inflation rate, unemployment rate and real exchange rate. For estimating the impact of violence on macroeconomic instability, we have employed system GMM technique. This empirical findings state that violence increases macroeconomic instability in selected sample of developing countries. We also report that among developing countries, low-income countries suffer more from violence in comparison to the middle-income countries. This finding is robust among all dimensions of violence taken by the study. Notably, we have found that the harmful impact of interstate violence is highest for macroeconomic instability. Our findings are robust as violence creates uncertainty which distorts investment, savings and consumption, and hence affects overall economic performance.
ISSN:1617-982X
1617-9838
DOI:10.1007/s10258-020-00188-y