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

Abstract

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.

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Notes

  1. 1.

    These studies, however, have computed MII for single country analysis. We have adopted the methodology to compute MII for a panel of 52 developing countries.

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Correspondence to Zainab Jehan.

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Appendices

Annexure A: Empirical Estimates with Dynamic Fixed Effect (FE-IV)

Table 7 Impact of Violence on Macroeconomic Instability
Table 8 Impact of Violence on Macroeconomic Instability

Dynamic Fixed Effect Model Estimates: A Comparison of Low and Middle Income Countries

Table 9 Impact of Violence on Macroeconomic Instability

Annexure B: Dynamic Fixed Effect Estimates with a measure of Human Capital

System GMM with Human Capital (Overall Violence Model)

Table 10 Impact of Violence on Macroeconomic Instability

Dynamic Fixed Effect Models with Human Capital (Overall Violence Model)

Table 11 Impact of Violence on Macroeconomic Instability

Dynamic Fixed Effect Models with Human Capital (Different types of Violence Model)

Table 12 Impact of Violence on Macroeconomic Instability (Table 12)

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Haroon, R., Jehan, Z. Measuring the impact of violence on macroeconomic instability: evidence from developing countries. Port Econ J (2020). https://doi.org/10.1007/s10258-020-00188-y

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Keywords

  • Violence
  • Macroeconomic instability
  • Globalization
  • Financial development

JEL classification

  • D89
  • E24
  • F62
  • P44
  • Q34