The Impact of Political Stability on Economic Growth: Perspective of Bangladesh

Abstract

Political stability usually has notable prominence in the course of economic expansion in any state. The key concern of this study is to explore the impact of political stability on Bangladesh's economic performance for the period 1990–2021. To capture the long-run co-integration along with the long-run and short-run effects of the explanatory variables, the Autoregressive Distributed Lag (ARDL) approach was applied. By introducing the ARDL bounds test approach in a sample of up to 32-year time-series data, it is found that the political instability has a strong negative impact on Bangladesh’s economic growth in the long term. In addition, this study also indicates that Bangladesh's economic growth is positively and statistically significantly impacted by capital stock. Having found co-integration, the Granger-causality test was applied and found unidirectional causality from political stability and absence of violence (PSAV) to GDP growth and PSAV to labor force. These results indicate that PSAV affects GDP growth, but GDP growth does not affect PSAV, and PSAV affects the labor force, but the labor force does not affect PSAV. For the models' overall fitness, several diagnostic tests along with stability and normality tests were applied throughout time.