Francisco José Veiga

How does political instability affect economic growth

The purpose of this paper is to empirically determine the effects of political instability on economic growth. By using the system-GMM estimator for linear dynamic panel data models on a sample covering up to 169 countries, and 5-year periods from 1960 to 2004, we find that higher degrees of political instability are associated with lower growth rates of GDP per capita. Regarding the channels of transmission, we find that political instability adversely affects growth by lowering the rates of productivity growth and, to a smaller degree, physical and human capital accumulation. Finally, economic freedom and ethnic homogeneity are beneficial to growth, while democracy may have a small negative effect.

How Does Political Instability Affect Economic Growth

The purpose of this paper is to empirically determine the effects of political instability on economic growth. Using the system-GMM estimator for linear dynamic panel data models on a sample covering up to 169 countries, and 5-year periods from 1960 to 2004, we find that higher degrees of political instability are associated with lower growth rates of GDP per capita. Regarding the channels of transmission, we find that political instability adversely affects growth by lowering the rates of productivity growth and, to a smaller degree, physical and human capital accumulation. Finally, economic freedom and ethnic homogeneity are beneficial to growth, while democracy may have a small negative effect.

The Determinants of Vote Intentions in Portugal

This paper offers new insights on the interactions between economics and politics in Portugal. We use two unexplored data sets consisting of monthly polls on vote intentions for the main political parties in Portugal and responses to a consumer survey containing a battery of questions on economic evaluations. The analysis covers the interval from 1986 to 2001. We find that: (1) right-wing governments are penalized for higher inflation while the left-wing ones are not, (2) left-wing governments are more penalized for increases in the unemployment rate; (3) voters base their evaluations of incumbents performances on perceptions of past and current economic conditions, rather than on expected future economic outcomes.

Delays of Inflation Stabilizations

In some new political economic models, delays of stabilizations result from coordination problems caused by collective choice-making mechanisms. Although several previous studies have tested the effects of political instability and fragmentation on seigniorage, deficits, or inflation, no direct tests of the influence of these factors on the delays of stabilizations have previously been undertaken. This paper reports the results of such tests. The degree of fragmentation of the political system and the level of inflation are identified as important determinants of the timing of inflation stabilizations.

Financial Globalization, Convergence and Growth

We provide evidence that the composition of foreign capital, measured by the ratio foreign direct investment over total liabilities, a.ects growth directly and through the speed of convergence. Developing countries benefit relatively more as their initial GDP is smaller. The dataset comprises the period 1970-2004 and 96 countries, and the results are robust to di.erent measures of the composition of foreign capital, restricted time period, developing countries, and alternative explanations of convergence and growth. These results are consistent with the neoclassical growth model with credit constraints presented in this paper, in which the composition of foreign capital a.ects the transition dynamics through a positive e.ect on the speed of convergence and steady state GDP.

The Impact of Local and National Economic Conditions on Legislative Election Results

Using data for 278 Portuguese mainland municipalities, we estimate the impact of national and local economic conditions on legislative electoral outcomes over the period from the reestablishment of democracy in 1974 to the present. Empirical results indicate that the performance of the national economy is important but that the municipal situation also conditions electoral outcomes.

What causes the failure of inflation stabilization plans

Abstract The paper discusses the causes of failure of inflation stabilization plans. Following a description of stylized facts of inflation stabilization, a model of Balance-of-Payments crises is presented, highlighting some of the main factors leading to the collapse of stabilizations. Empirical results obtained when estimating a binary probit model over a panel of 34 stabilizations identify real exchange rate appreciation, lack of foreign reserves, and government budget deficits as the main causes of failure of inflation stabilization plans. This is consistent with the model presented in this paper, with the stylized facts of stabilizations, and with some of the models found in the literature.

Currency Substitution, Portfolio Diversification and Money Demand

We extend the Thomas (1985) dynamic optimizing model of money demand and currency substitution to the case in which the individual has restricted or no access to foreign currency denominated bonds. In this case currency substitution decisions and asset substitution decisions are not separable. The results obtained suggest that the significance of an expected exchange rate depreciation term in the demand for domestic money provides a valid test for the presence of currency substitution. Applying this approach to six Latin-American countries, we find evidence of currency substitution in Colombia, Dominican Republic, and Venezuela, but not in Brazil and Chile.

Does Political Instability Lead to Higher and more Volatile Inflation? A Panel Data Analysis

Economists generally accept the proposition that high and volatile inflation rates generate inefficiencies that reduce societys welfare. Furthermore, studies have shown that inflation is harmful to economic growth. However, determining the causes of the worldwide diversity of inflationary experiences is an important challenge not yet satisfactorily confronted by the profession. Based on a broad dataset covering over 100 countries for the period 1975-1997 and using dynamic and static panel data econometric techniques, this paper shows that a higher degree of political instability is associated with both higher inflation levels and volatility. Not only does this paper advance the political economy literature establishing a relationship between inflation moments and political instability, but it also has important policy implications regarding the optimal design of inflation stabilization programs and of the institutions favorable to price stability.

Does IMF support accelerate inflation stabilization

This paper analyzes the effects of International Monetary Fund (IMF) arrangements on the timing of inflation stabilization programs. By providing financial support that may allow the reduction of inflation without incurring politically unacceptable economic costs, the IMF can hasten stabilization. But, since support can also reduce the costs of inflation, it may instead delay it. Empirical results obtained for 10 countries that suffered from chronic inflation fail to support the hypothesis that IMF financial assistance accelerates stabilization. Rather, they indicate that other factors have a greater impact on the timing of stabilizations: greater fragmentation of the political system delays stabilization, while a higher level of inflation hastens it.