The Impact of Political Stability On Economic Growth, Evidence From Developing Countries
The Impact of Political Stability On Economic Growth, Evidence From Developing Countries
The Impact of Political Stability On Economic Growth, Evidence From Developing Countries
ISSN No:-2456-2165
Holy Spirit University of Kaslik (USEK)
Submitted to the
Department of Doctoral Studies
at the USEK Business School
In partial fulfillment of the requirement
For the degree of Ph.D. of Business Administration - Finance
at the
Holy Spirit University of Kaslik (USEK)
Kaslik, Lebanon
March,2023
ABSTRACT
The goal of this study is to analyze whether political stability and governmental decisions have a
significant impact on countries with a developing economy, for a practical implication of fighting
poverty and realizing convergence between countries relatively poor and countries with abundance of
wealth, for the ultimate benefit of the society.
Keywords:- Economic growth, Gross Domestic Product, Political stability, rule of law, Control of
Corruption, Quality of regulations, Government effectiveness
LIST OF TABLES
List of Figures
CHAPTER ONE
INTRODUCTION
A. Background and Statement of the Problem
In a world were according to theories, economies of countries tend to converge and according to reality
the differences between developing and developed countries is in some cases increasing and the difference
in the quality of living widening, Scholars argue about why the Solow model of convergence between
countries failed but what they do agree about is that it did fail and the gap instead of tightening, widened
(Snowdon, 2009)
CHAPTER TWO
LITERATURE REVIEW
A. Mainstream Literature Review
While in many countries, the government lead the people towards prosperity (Han et al., 2020) yet in
many cases this is not the reality especially in countries where the corruption index is high (Ali et al., 2019)
and instead of poverty reduction strategies and theories the result would be wealth and abundance for
corrupt officials combined with poor infrastructure reducing the efficiency of even the most successful of
firms on a national scale.
Many firms perform a regular study to identify their strengths, weaknesses, opportunities and threats,
this SWOT analysis enables a corporation to enhance its efficiency by, in addition to analyzing itself
internally, analyzing the external environment in which it operates to seize opportunities when present and
to control threat when possible, and if Foreign Direct investment FDI increases in developed countries due
to proper infrastructure (Abbas et al., 2019) it would be logical that it poor infrastructure would decrease
FDI in the case of developing countries.
In fact, both geopolitical risks and regulatory changes are part of the risk governance framework of
many large companies running in developing countries and in an era of extreme competition worrying and
solving macro-economic issues would decrease efficiencies in companies that ought to focus more their
internal processes, strengths and weaknesses to maximize profits instead of having management worrying
about external risks.
Scholars argue that in addition to stability, transparent regulations would increase FDI (Mosteanu,
2019), this was the case for United Arab Emirates where as per the government’s strategy to decrease the
economy’s dependency on Oil Export, the tactical decision was to enhance regulation’s quality to attract
more successful firms to the Country, in addition to regulation both the law the ability to enforce the law are
possible factors influencing firm’s decision to enter a new market (Haines & Macdonald, 2021), together for
proper law without enforcement has an intangible effect, and strong law enforcement without proper law
would have an adverse tangible effect, it is not surprising that countries who value property rights the most
are the countries in which innovation as well as research and development prosper the most.
B. Theoretical Framework
Previous theories that would be put to the test for significance include the uncertainty theory (Jung et al.,
2021) according to which geopolitical instability would negatively impact large public firms and their stock
prices as well as, to a lesser extent, small and medium enterprises SMES, another theory related to sound
governance is the public interest theory of regulation which claims that government regulations act to
benefit the public yet in many cases the impact of excessive regulation was adverse as such interventions
made private investment less secure and increase the risk premium and thus the cost of raising capital for
many firms (Wilson, 2021).
Hypothesis one: Political stability and the absence of violence have a significant impact on the
performance of developing countries.
Hypothesis two: The quality of public services and Government effectiveness have a significant impact on
the performance of developing countries.
Hypothesis three: Sound policies and regulations have a significant impact on the performance of
developing countries.
Hypothesis four: Law enforcement and property rights have a significant impact on the performance of
developing countries.
Hypothesis five: Control of corruption have a significant impact on the performance of developing
countries.
CHAPTER THREE
RESEARCH METHODOLOGY
Note. The Score of independent variables is related to the percentile rank among all countries ranging from 0
as lowest to 100 as highest
Note. A rather long time scale of twenty years is used to improve output reliability
CHAPTER FOUR
Regression Statistics
Multiple R 0.820400237
R Square 0.67305655
Adjusted R Square 0.556291032
Significance
Standard Error 8635324703 F
Observations 20 0.004292829
ANOVA
df SS MS F
Regression 5 2.14914E+21 4.29828E+20 5.764172172
Residual 14 1.04396E+21 7.45688E+19
Total 19 3.1931E+21
Note. At a significance effect of 0.004 and a power value below 0.05 we successfully reject null hypotheses
H03 and H04 According to which regulatory quality and rule of law have no significant impact on the GDP
of the developing economy of Lebanon.
Regression Statistics
Multiple R 0.43935967
R Square 0.19303692
Adjusted R Square -0.09516418
Significance
Standard Error 13474505146 F
Observations 20 0.652844089
ANOVA
df SS MS F
Regression 5 6.08052E+20 1.2161E+20 0.669799385
Residual 14 2.54187E+21 1.81562E+20
Total 19 3.14992E+21
Standard
Coefficients Error t Stat P-value
Intercept 1.12443E+11 1.55419E+11 0.723 0.481
-
Political stability 302646694.5 770452555 -0.393 0.700
-
Government effectiveness 992778568.9 2103153785 -0.472 0.644
Regulatory quality 34570796.83 1630182525 0.021 0.983
Rule of Law 991871626 1337835549 0.741 0.471
Control of Corruption -1248089149 1205699317 -1.035 0.318
Table 4: The case of Jordan
Note. With a significance above 0.05 we fail to reject all null hypotheses related to the impact of the above
variables on the GDP of Jordan.
Regression Statistics
Multiple R 0.965832827
R Square 0.93283305
Adjusted R Square 0.908844854
Significance
Standard Error 8743338602 F
Observations 20 0.00000010
ANOVA
df SS MS F
Regression 5 1.48638E+22 2.97277E+21 38.8871692
Residual 14 1.07024E+21 7.6446E+19
Total 19 1.59341E+22
Standard
Coefficients Error t Stat P-value
Intercept 2.29946E+11 47825862825 4.808 0.000
Political stability 1788767155 178184049.4 10.039 0.000
Government effectiveness 463557350.3 580137453.4 0.799 0.438
Regulatory quality -1159814064 446995084.7 -2.595 0.021
Rule of Law -3357110097 624721139 -5.374 0.000
-
Control of Corruption 45379437.44 668789728.1 -0.068 0.947
Table 5: The case of Sri Lanka
Note. With a significance of 0.0000001 and power value below 0.05 we successfully reject Null hypothesis
one, three and four related to the significance of political stability, regulatory quality and Rule of law on the
GDP of Sri Lanka, a developing country.
Regression Statistics
Multiple R 0.87045696
R Square 0.75769532
Adjusted R Square 0.671157934
Standard Error 1.03443E+11 Significance F
Observations 20 0.000610999
ANOVA
df SS MS F
Regression 5 4.68452E+23 9.36904E+22 8.755699209
Residual 14 1.49807E+23 1.07005E+22
Total 19 6.18259E+23
Note. With a significance level of 0.0006 and a power value of 0.039 we successfully reject null hypothesis
one related to political stability and fail to reject null hypotheses two to five in the case of the developing
country of Mexico.
Regression Statistics
Multiple R 0.781468574
R Square 0.610693132
Adjusted R Square 0.471654965
Standard Error 3512373035 Significance F
Observations 20 0.012940506
ANOVA
df SS MS F
Regression 5 2.70932E+20 5.41864E+19 4.392269719
Residual 14 1.72715E+20 1.23368E+19
Total 19 4.43647E+20
Significance By Country
120.0%
100.0%
99.6% 100.0% 99.9% 98.7%
80.0%
60.0%
40.0%
34.7%
20.0%
0.0%
LEBANON Jordan Sri Lanka Mexico Mongolia
Fig. 1: Results Significance by Country
Note. As we discuss the results, in four out of five developing countries the collective impact of the
variables of political stability, government effectiveness, regulations quality, rule of law and control of
Governance had a significant impact on the output of the economy of the developing countries that were part
of the study, confirming that a one of the reasons of the weak economy of the countries above is related to
political factors.
CHAPTER FIVE
CONCLUSION
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