Political instability and economic vulnerability

This paper analyzes and tests the influence of political instability on eco nomic vulnerability in the context of the 1994 and 1997 crisis episodes. It constructs four political variables that aim at quantifying political inst ability. The paper finds that, for countries with weak economic fundamental s and low reserves, political instability has a strong impact on economic v ulnerability. The estimation results suggest that including political varia bles in economic models does improve their power to explain and predict eco nomic crises. The paper concludes that countries are more economically vuln erable during, and especially following, election periods, and when electio n results are less stable than at other times. Copyright (C) 2000 John Wile y & Sons, Ltd.