Political instability and economic growth: Implications of coup events in Sub-Saharan Africa

I Introduction THE GENERALLY DISMAL African economic growth record during the post-colonial period has been accorded plenty of attention in the development literature as well as in the popular press. At the same time, there is an emerging consensus in the literature that institutional factors are major determinants of economic growth. One such variable that has been given special attention is political instability (PI), measured as the incidence of coups d'etat, which is generally observed to be adverse to growth (e.g., Londregan and Poole 1990; Barro 1991, 1996; Fosu 1992; Alesina et al. 1996; and Easterly and Levine 1997). PI has been found to be a particularly important culprit in the observed low growth of African economies. For example, Fosu (1992) finds the "direct" adverse effect of PI in Sub-Saharan Africa (SSA) to be as much as 33 percent of the GDP growth over the 1960-1986 period. This finding is based on a PI index of the frequencies of "abortive" coups and "plots," as well as "successful" coups (McGowan and Johnson 1984). (1) The present paper examines the extent to which these three forms of PI events may exert differential impacts on economic growth. Assessing the relative importance of the various facets of coups is important for three related reasons. First, it should shed light on the appropriate weights for the PI index. For example, McGowan and Johnson assume that successful coups were the most destabilizing, followed by attempted coups, and then coup plots. Thus they, rather arbitrarily, assigned respective weights of 5, 3, and 1. Are these weights supportable by the empirical evidence, or are there better empirically defensible weights? Second, evidence on the comparative importance of these different forms of coups would permit a relatively accurate prediction of the implications of a given coup event for economic growth. Third, as Table 1 indicates, the composition of coup events varied substantially across countries over the 1958-1986 period. For example, concentrating on nations that experienced at least two types of coup events, Liberia's coup incidence was primarily plots, whereas about two-thirds of Niger's and Zambia's coup frequencies were abortive. Meanwhile, as many as one-half of the coup incidents were successful for several of the countries: Benin, Burkina Faso, Burundi, Nigeria, and Rwanda. Thus, if the implications of PI for economic growth vary by coup event, there would appear to be different consequences for various countries, depending on their respective historical patterns of coups. II Theoretical Discussion THE THEORETICAL RATIONALE underlying why "elite" PI--the forceful removal, or attempt or plot to remove, from office those in leadership positions in a given country (Morrison and Stevenson 1971)--may be economically deleterious is well discussed in the literature (e.g., Alesina et al. 1996; Fosu 1992). PI is hypothesized to destabilize economic rules of resource allocation governing effort and expected reward. Such destabilization would likely reduce the efficiency of the production process and, hence, economic growth (Fosu 1992). Kuznets, for example, writes: "Clearly some minimum political stability is necessary if members of the economic society are to plan ahead and be assured of a relatively stable relation between their contribution to economic activity and their rewards" (1966:451). There might, however, be differential impacts of the various forms of PI events measuring this political stability. Since a successful coup tends to put the stamp of a new regime on a given country, it portends the greatest likelihood of actual changes in the economic rules of operation. New (military) governments that seize executive power must justify their raison d'etre. The African historical coup incidence record is replete with accounts of emerging military coup leaders decreeing new rules such as debt abrogation, cancellation of previous currency devaluations, and reinstitution of government subsidies. …