Political Instability and Economic Growth in Sub-sahara Africa

Abstract: This paper analyzes the relationship between political instability and economic growth in Sub-Sahara Africa. Political instability is assumed to impede economic growth , because it induces some amount of uncertainty about future economic policies and resource allocation of public and private goods, which in turn disrupts market activities, productivity and domestic and foreign investment decisions. However, previous research has relied on rather crude indicators of political instability such as coup events or change of the head of state, which are measured at country-year level. Therefore, previous findings likely suffer from problems of endogeneity and reverse causality. To address this problem, we utilize new fine-grained data on political instability, which captures monthly cabinet changes for a sample of 40 Sub-Saharan African countries for the time period 1960 – 2019. Results from fixed-effects regression models indicate a substantial negative effect of cabinet changes on short- and long-term growth rates. To account for problems of endogeneity, we use the natural death of African ministers as exogenous variation encouraging cabinet changes. Results from two-stage least squares regressions confirm the negative effect of cabinet changes on economic growth.