Two to Tangle: Financial Development, Political Instability and Economic Growth in Argentina

        with Menelaos Karanasos and Bin Tan

        Published in Journal of Banking and Finance, 36 (2012) 290304 (PDF)

        This paper studies the impact of financial liberalization on economic growth. It contributes to this literature
        by using an innovative econometric methodology and a unique data set of historical series. It presents
        power ARCH estimates for Argentina for the period from 1896 to 2000. The main results show that
        the long-run effect of financial liberalization on economic growth is positive while the short-run effect is
        negative, albeit substantially smaller. Interestingly, we find that financial development affects growth
        only directly, that is, not through growth volatility.

        Regarding the role of political instability, our findings suggest that (i) informal political instability
        (e.g., guerrilla warfare) has a direct negative impact on growth; (ii) formal instability  (e.g., cabinet changes)
        has an indirect (through volatility) impact on growth; and (iii)  the informal instability effects on growth are
        larger in the short- than in the long-run.

         February 2011 version (fully revised, a few new results):   PDF

         Download working paper version:       IZA DP           CEPR DP

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