Are Economic Crises and Government Changes Related? A Descriptive…
Are Economic Crises and Government Changes Related? A Descriptive Statistic Analysis
"DESCRIPTIVE STATISTICS ANALYSIS"
Performance of Economic Crises as a Signal of Government Changes
Table IV reports calculations of the noise-to-signal ratio associated with performance of economic crises on set government changes.
Asian and Transition economies have higher noise-to-signal ratios.
Developed countries have lower noise-to-signal ratio than developing countries.
Performance of Economic Crises as a Predictor of Government Changes
D is the number of instances in which an economic crisis did not issue a signal in a particular year t when there was no a government change in year (t) or (t + 1)
A is the number of instances in which an economic crisis issues a signal in a particular year t and a government change occurred in year (t) or (t + 1)
C is the number of instances in which an economic crisis issues a signal in a particular year t and a government change did not occur in year (t) or (t + 1)
B is the number of instances in which an economic crisis did not issue a signal in a particular year t when there was a government change in year (t) or (t + 1)
Regional Distribution of Government Change and Economic Crises
Table II shows the distribution of crises by regions and categories.
Time Distribution of Government Change and Economic Crises
Table I provides a quick overview of the time distribution of government changes and economic crises.
A total of 188 elections, 99 government changes (53 percent of observations) and 54 economic crises are identified in the sample period of 1990-2007.
"CONCLUSION AND RECOMMENDATIONS"
The predictive power of economic crises in developing countries (43%) is lower than in developed countries (55 %).
The percentage of government changes is highest in the economies in transition (86%) and in the lowest Latin American economies (39%).
The percentages of government changes are the same in developed and developing countries.
The predictive power of economic crises on the start of a change of government is higher in the economies in transition (81%) and lower in the countries of Latin America (30%).
The number of elections and the number of government changes peaked in the 1996-2001 periods when the economic crises of Latin America and Asia appeared.
"THE LINK BETWEEN ECONOMIC CRISES AND GOVERNMENT CHANGES"
Akarca and Tansel
Empirically investigated 25 election episodes for Turkey and the result showed that economic conditions play an important role of re-election of incumbent government.
The study showed that 1997-1998 economic crises created huge pressure for political change in Indonesia, South Korea and Malaysia.
Investigated the relationship between per capita GDP and political instability for 19 countries by using Granger-causality test.
Brender and Drazen
The positive economic growth decreases unemployment and improves government services through increase in government revenue.
Alesina, Ozler, Roubini and Swagel
The political instability may lead to uncertainty about government policies and discourages the existing and potential investors to invest.
De Haan and Sierman
The political instability causes capital outflow and worsening economic conditions.
When foreign lenders are pessimistic about the country’s economic and politic conditions, they will demand higher interest rates on the debt and more probably lead to economic and politic crises.
"DEFINITION OF ECONOMIC CRISIS, GOVERNMENT CHANGE AND DATA SAMPLE"
This study covers 51 economies2 from different regions and categories, including 8 from Asia, 8 from Latin America, 10 from Transition economies, 19 from developing economies and 19 from developed economies.
%∆ GDP is percentage change of annual GDP.
Condition 2 states that if growth rate of GDP decreases two consecutive years and decrease must be more than %50, then it is considered an economic crisis.
Condition 1 is the capture annual negative growth in country. A negative growth of GDP in the country is considered as an economic crisis.
An economic crisis is considered to occur when one of the following conditions is met:
Condition 1. Pr (crisis)it = 1 Pr (crisis)it = 0,
if %∆ GDPit < 0 (negative growth) otherwise.
if Growth rate of GDP decrease two
Pr (crisis)it = 1 consecutive years and decrease must be more than %50.
Pr (crisis)it = 0, otherwise.