The Relationship between Political Stability & Economic Growth

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Table of Contents

Introduction
Discussion
Conclusion
References

Introduction

Many people do not understand whether political stability leads to economic growth or it is the vice versa. Either way, the two elements have a close relationship. This essay will discuss the relationship between political stability and economic growth. In addition, it will also identify the theoretical foundations that justify the existing relationship between the two elements.

The relationship between political stability and economic growth is undeniable. Economic growth in a country depends on the development strategies created and implemented by its political system (Vahabi, 2004). A country’s political system is very important in determining its fate.

Various types of political systems used in the world provide different results, in terms of economic empowerment to citizens and overall economic performance. When there are positive economic results, people will approve the political system in place and continue to give it the necessary support (Vahabi, 2004). Thus, economic growth can lead to political stability.

On the other hand, poor economic results lead to destabilized growth and societal changes. The result is that people will condemn the political system in place. Thus, political structures can influence economic growth in a country. Political stability is an essential ingredient for economic growth because it enhances productivity, as well as development of human and physical resources necessary for development (Ricardo, 2010).

Discussion

Two theories explain the relationship between political stability and economic growth. First, the good growth hypothesis theory argues that good economic growth can trigger stability in a country because people will be ok with the political leaders guiding them (Vahabi, 2004).

A country with this kind of atmosphere is unlikely to experience any form of political instability because people will not oppose government programs and the policies developed.

The second one is the destabilizing growth hypothesis theory, which argues that poor political systems can easily cause low economic development in a country. Poor economic development is characterized by changes in the general welfare of the people and the quality of life (Ricardo, 2010). These theories show the interdependence between political stability and economic development in a country.

Levels of economic development are different in countries that have dictatorial and democratic systems of governance (Ricardo, 2010). For example, dictation systems of governance are used in some parts of Africa and Latin America. This system promotes an exclusive commercial environment where people have to do things in a similar fashion.

This has resulted in poor economic growth in those countries. In the case of a democratic system of governance, the economic results are mixed. For example, countries such as India had a democracy in the 1980s, but they experienced a prolonged spell of an economy with retarded growth (McCartney, 2009). The United States of America is one of the oldest democracies.

The country has achieved high levels of economic development over a couple of decades. The good thing about a democracy is the ability of business developers to work in an inclusive environment, where people consider the ideas and needs of other people. Other political systems such as authoritarian have a good reputation for promoting speedy economic growth just like the case of East Asia (McCartney, 2009).

Economic transition is an element of economic development that can cause political instability in a country. People have different ways of responding to change, especially if it directly influences on their welfare (Feng, 2003). Developing and implementing new economic policies in a country can be disadvantageous. Any form of resistance and protest against them can lead to an unstable political environment.

Many people do not understand the concept of political instability as much as they understand economic development. Political instability as a concept develops along four themes namely: government, political system, external environment, as well as law and order (Vahabi, 2004).

The government is very crucial to stability and economic development in a country because it holds the responsibility of developing legislation. A country’s political system develops according to the directive given by the government through a constitution. In achieving political stability, it is also important to ensure that both the internal and external environments of the government are safe and secure (Ricardo, 2010).

Studies have established that countries reap maximum benefits from their economies when there is enough political stability. Politicians are very influential people in a society. However, they can use their ability to mobilize people into supporting strategies that destabilize the economy if they have differences they want to settle among themselves (Siermann, 1998).

Political leaders have the responsibility to ensure that the political systems used in their country provide the conditions that support economic development. For example, the 9/11 U.S. bombing is one of the recent activities that have demonstrated the relationship between political stability and economic development (Siermann, 1998).

One of the reasons that could have influenced the attacks is the high vulnerability of Americans from the external environment due to the political environment in the country at the time. This tragic event had numerous effects on the country’s economy in terms of human resources that were lost, and the amount of financial resources used in managing its effects (Feng, 2003).

Such events often reduce investor confidence. Many business developers would have the fear of taking a huge risk investing in an economy that has an unstable political system. Most terrorist attacks are motivated by political differences between different countries (McCartney, 2009).

Another phenomenon that has affected economic development in America is the 2007 global financial crisis (Siermann, 1998). During this time, the economic meltdown experienced in America and across various economies around the world was very massive.

Economic experts and international relations firms, argued that the financial crisis was avoidable if only the political structures in America had worked in harmony to identify the gaps and develop effective mitigation measures (Siermann, 1998). Economic development cannot take place without the right supporting structures and the right conditions.

Conclusion

The relationship between these two elements is undeniable, because economic growth in a country is dependent on the development strategies developed by its political system. Political stability is an essential ingredient for economic growth because it enhances productivity, as well as development of human and physical resources necessary for development.

Two theories explain the relationship between political stability and economic growth: the good growth hypothesis theory and destabilizing growth hypothesis theory. Economic transition is an element of economic development that can cause political instability in a country.

People have different ways of responding to change, especially if it directly influences on their welfare. Studies have established that countries reap maximum benefits from their economies when there is enough political stability.

References

Feng, Y., 2003, Democracy, Governance, and Economic Performance: Theory and Evidence. MIT Press, Cambridge. Web.

McCartney, M., 2009, India: The Political Economy of Growth, Stagnation and the State, 1951-2007, Routledge, New Jersey. Web.

Ricardo, D., 2010, Principles of Political Economy and Taxation, Oxford University Press, London.

Siermann, C., 1998, Politics, Institutions, and the Economic Performance of Nations, Edward Elgar Publishing, New York. Web.

Vahabi, M., 2004, The Political Economy of Destructive Power, Edward Elgar Publishing, New York. Web.

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The Relationship between Political Stability & Economic Growth

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