Abstract.
Political Stability has been an issue for Pakistan since its inception consequently economic growth presents a marked fluctuation. In Pakistan research in this area is minimal. This study aims to reveal the nature of the relationship between them. To carry out the research solow-swan growth model is applied and assumed that productivity enhances the environment of consistency and certainty of the ruling regime. Annual time series data is utilized for the period of 1972-2016.
Key Words:
Political Stability, Economic Development, Investment, Long run relationship, Economic Policies.
Introduction.
Exploring a relationship between political stability and economic performance has attracted a great deal of attention form economic and political researchers in the last couple of decades. The main reasons for a high degree of political instability are inaccurate socioeconomic policies, large budget deficits, and an unstable exchange rate ( Acenoglu et al,2003). A significant part of economic literature advocates that political instability negatively affect the growth and development of the economy ( Alesina et al..1996) Nasir et al.2008: khan & saqib,2011)
Literature Review
The Relationship among political stability or many regime changes, violence and terrorism. and economic development is a relatively new area of research in economic literature. Several studies, both quantitative and qualitative, are available in the existing body of knowledge. Still, so far, a consensus has not been built regarding the nature of relationship between political stability and economic development.
Research Methodology
The study utilizes annual time series data for real GDP per capita, gross fixed capital formation as percentage of real GDP, and political stability. The model is specified based on previous studies and economic theories, Recent economic techniques has been applied.
Conclusions
The objective of this study was to identify the nature of the relationship between political stability and economic growth in Pakistan from 1972 to 2016. We use per capita GDP, Investment as a percentage of GDP, and Political Stability. Since all variables were non-stationary at the level and stationary at 1st difference, Johansen Test of Cointegration and VECM model was applied. The Study indicates that there is an insignificant negative relationship between economic growth and Political Stability.
Recommendations
The study extends some suggestions or recommendations for the better performance of the economy.
a) An agreement or consensus is suggested for all stakeholders of the country that the long term policies developed in one regime must be continued irrespective of any change in economic managers or policymakers.
b) Existing rulers must focus on the economic performance and wellbeing of the citizens, which minimizes political uncertainty.
Muhammad Waseem Qureshi