Growth, Volatility and Political Instability : Non-Linear Time-Series Evidence for Argentina, 1896-2000

What is the relationship between economic growth and its volatility? Does political instability affect growth directly or indirectly, through volatility? This paper tries to answer such questions using a power-ARCH framework with annual time series data for Argentina from 1896 to 2000. We show that while assassinations and strikes (what we call quot;informalquot; political instability) have a direct negative effect on economic growth, quot;formalquot; political instability (constitutional and legislative changes) has an indirect (through volatility) negative impact. We also find preliminary support for the idea that while the effects of quot;formalquot; instability are stronger in the long-run, those of quot;informalquot; instability are stronger in the short-run