An Economic Impact of Political Instability and Corruption on Economic Development: Evidence from Pakistan

Abstract

Objective: The present study intended to explore the consequences of political instability and corruption on economic development for the case of Pakistan.

Research Gap: The vacant literature on the topic analyzed the corruption and political instability impacts on economic development separately. However, the present study captures the impacts of both variables simultaneously for the case of Pakistan economy by using time series data and ARDL technique.

Design/Methodology/Approach: Objective is fulfilled by taking time series data from 1984-2020 fir Pakistan economy.  The principal variables were corruption and political instability, other control variables include total investment to GDP ratio and gross fixed capital formation.  GDP growth is used as proxy for economic development.  Data is obtained from transparency international and international country risk guide.  For empirical investigation Autoregressive Distributed Lag (ARDL) model is used.  An index is developed for political instability. 

The Main Findings: The results demonstrated that political instability and corruption can deteriorate the economic development since the negative impact is found of the principal variables on economic development.  Investment to GDP ratio and GFCF have positive impact on economic development.  Based on the findings of the present research it is suggested that steps should be taken for the control of corruption and for political stability.

Theoretical / Practical Implications of the Findings: The results indicate that economic development is hindered by political instability and corruption. To enhance economic progress in the case of Pakistan, it is essential to implement policies that promote political stability and eliminate corruption, as these factors act as significant obstacles to economic growth.

Originality/Value: The research employed Transparency International's CPI index to assess the influence of corruption on economic development. Additionally, a self-created index of political instability was utilized to gauge the effects of political instability on economic growth. These measures are likely being employed for the first time to evaluate the long-term impacts of the study variables on the economy of Pakistan, utilizing the latest available data.