The Relationship Between Political Stability and Economic Growth - Essay Example

Relationship between political stability and economic growth affiliation Department Relationship between political stability and economic growth Introduction There is a deep interconnection between political stability of the country and its economic growth. On the other hand, reduction in investment and decrease in the rate of economic development may occur due to the uncertainties that are more so associated with the political environment that is very unstable. Government may collapse because of poor economic performance and unrest in politics. However, stability in the political arena can be achieved through oppression by the government and having a political party in ruling that does not seek for re-election. In both scenarios, political stability will be acting as a double edge sword. Political stability in any country may offer a peaceful environment for investment to take place. In addition to this, the stability may also provide a good ground where impunity is tolerated. Most countries that have with political fragility go through such dilemma. Political stability, therefore, is by no means considered the norm in the history of humans. Like all political regimes, democratic regimes are also fragile. Irrespective of the political regimes, if a country is stable and does not worry about the radical changes of regimes and conflicts, the citizens do concentrate on working hard in running their businesses, saving and investing in other economic activities (Acemoglu & Robinson 2006, pp.115–131). Relationship between political stability and economic growth Stable governance and politics are by no doubt a means through which economic growth takes place. With a peaceful political environment, the government can formulate its agendas. Good investing policies attract investors in the country and makes citizens willing to work hard and improve the country’s economic growth. It is seen that democracy in developed and developing countries foster the growth in the economy compared to the countries that are non-democratic (Aisen & Veiga 2013, pp.151–167). In most countries that are developing, the liberalization of politics can lead to policies imposed in economy that are detrimental to the growth of economy. Countries that have a greater level of political freedom and enjoys political stability may not implement policies of trade liberalization that could be having beneficial effect on growth. Democratic in situations in a country that has complete political stability have tendencies of creating checks and balances that effectively have a control to the power of government and limit any potential implementation of any policies that is unpopular. In addition to this, democracies in democratic institutions can offer protection to properties that are owned privately. This property in a democratic country is seen to be the foundation of any material progress hat help in building the economy of any nation (Doucouliagos & Ulubaşoǧlu 2008, pp.61–83). It can be argued that stability in politics of any nation can affect the rate at which the country’s economic growth takes place. In addition to this, the level of investment can be altered through increasing the confidence level of investors in that country. The democratic effect on investment is only tentative. According to Burke (2012), they argue that the growth that is as a result of democratic effect is political instability. Political instability works through creation of incentives for the rulers to adopt behaviors that are predatory in nature vis-à-vis the resources of the economy that are private. In a democratic country, such predatory behaviors are discouraged because every aspect of decision-making is made open to the public for debate. This helps in a smooth transition of powers through the elections made by the public. A country that is political stable and practices democracy gives its investors assurances that their investors are safe in the country. Most democratic countries place a great weight on providing the people with the basic needs. This eventually leads to the government spending many resources towards education. The human capital is, therefore, affected by any instability of the country. Any instability in the country leads to high consumption of the government aimed at reducing the risks of losing the positions held thus the room is left for spending on human development. On the other hand, Political stability and economic freedom promotes human development and encourages specialization of the citizens, thereby increasing the economic productivity of the human capital leading to economic growth (Dunning 2005, pp.451–482). In countries where political stability is practiced, a direct economic growth is realized through positive effect on the rates of investments. Investors will only invest their resources in a country where peace exists, and they are assured of their properties. In contrast to this, economists and investors refer to political instability as a malaise that has a serious harm to the economic growth of the nation. The political instability in the country is most likely to shorten the horizons of the policy makers, thereby leading to macroeconomic policies that are suboptimal operating in the country making investors turn away. Example, Ukraine is a country whose economy was great is plunging into economic crisis because of a longstanding internal conflict that is politically triggered. The war being experienced in eastern Ukraine has driven away the investors from the region. With no person willing to invest in a war torn region, Ukraine is suffering losses in terms of revenues. This destabilizes the economy of the nation and the country strains to keep its citizens stable and create job employment for those who have been displaced by war. In the same region, United Kingdom has been experiencing a good economic growth over the last decade. The country has been enjoying a peaceful political climate for many years. Its stable political system has made it possible for the law forming bodies of the government to enact policies that factors the economic growth of the country. Because of its political stability, a country becomes peaceful and provides a good environment for investment to take place. Several multi-billion dollar investment companies are willing to invest in the United Kingdom because of the peaceful state of the country, and that investment safety is assured because of the political stability. Conclusion Some people see political stability as a condition that tries to preclude any form of change and demoralizes the public. Political stability can also take the form of stagnation and complacency in a country where competition is not allowed, and this affects the growth of the economy. The principles of competition can be applied in several other areas apart from business. It ca be applied even in the political system. Political stability might refer in this case as lack of competition among the elites that govern, and this may lead to vices such as corruption in the country and plunges the economy hindering it from growing. References Acemoglu, D. & Robinson, J. a, 2006. Economic Backwardness in Political Perspective. American Political Science Review, 100, pp.115–131. Aisen, A. & Veiga, F.J., 2013. How does political instability affect economic growth? European Journal of Political Economy, 29, pp.151–167. Burke, P.J., 2012. Economic Growth and Political Survival. The B.E. Journal of Macroeconomics, 12. Doucouliagos, H. & Ulubaşoǧlu, M.A., 2008. Democracy and economic growth: A meta-analysis. American Journal of Political Science, 52, pp.61–83. Dunning, T., 2005. Resource Dependence, Economic Performance, and Political Stability. Journal of Conflict Resolution, 49, pp.451–482.  Read More