Aim and Introduction:
A growing body of research highlights the bidirectional relationship between conflict and economic performance. Findings indicate that economic decline—particularly severe recessions that reduce income levels, exacerbate inequalities, and intensify widespread economic distress—can fuel social unrest and internal conflicts. Periods characterized by a high risk of government collapse are associated with significantly lower rates of economic growth compared to more politically stable periods. Although such violent events may not occur frequently, they are prevalent worldwide and have affected numerous countries.
The Middle East, in particular, has long been afflicted by internal unrest, persistent conflicts, and intra- and intergovernmental tensions—all of which adversely influence national economies. Political economy literature underscores a complex interplay between political forces and economic direction, suggesting that political instability can disrupt economic continuity and hinder economic growth—a central indicator of national economic performance.
Accordingly, the primary objective of this study is to model the effects of political instability and conflict on economic growth in a sample of developing and developed countries, namely Iran, Iraq, Saudi Arabia, Russia, the United States, India, China, and Canada.
Methodology:
This study adopts a descriptive-analytical approach with practical applications, relying on secondary data collected through documentary research. The analytical method employed is the Bayesian Markov Switching Panel Regression, which effectively captures symmetric and asymmetric effects across different economic regimes.
The selected countries—spanning both developed and developing contexts—include Iran, Iraq, and Saudi Arabia, which have historically faced political tension and oil revenue fluctuations, as well as Russia, Canada, the United States, India, and China. The inclusion of India and China reflects their status as major global energy consumers. These countries were chosen based on their exposure to international tensions and their substantial influence on the global energy landscape.
The study period covers 1990 to 2020. The Markov switching panel framework enables the model to differentiate the impact of explanatory variables across distinct economic regimes. For instance, political stability may influence economic growth differently during recessionary periods compared to times of economic expansion. The variables analyzed include conflict intensity, political instability, oil income, population growth, foreign direct investment, life expectancy, government expenditure, budget deficits, trade openness, and the governance quality index.
Results and Discussion:
The analysis reveals that conflict and economic instability exert statistically significant effects on economic growth across both recession and growth regimes. In the recession regime, the coefficients for conflict and instability are 0.17% and 0.12%, respectively, while in the growth regime, they are slightly lower at 0.16% and 0.11%. Although both variables remain significant in both regimes, their influence is more pronounced during recessions, implying that political instability and conflict are more detrimental to growth when the economy is already underperforming.
These findings are consistent with prior research by Ashenfelter and Troeger (2006), Gaybulov and Sandler (2019), and Bart et al. (2021). Additionally, variables such as oil income, population growth, foreign direct investment, life expectancy, government expenditure, trade openness, and governance quality all exhibit positive and statistically significant effects on economic growth in both regimes.
The dominant economic regime identified in the study is the growth regime. Notably, with the exception of Iraq, Iran, and Saudi Arabia, the other countries analyzed have been experiencing economic growth in recent years. This observation underscores the correlation between political stability and sustained economic performance.
Conclusion:
The findings of this research emphasize the critical role of political stability in fostering a robust and resilient economic environment. A stable political climate is not only essential for social cohesion but also serves as a prerequisite for sustained economic growth and development. Policymakers are thus encouraged to invest in institutional reforms, infrastructure development, and inclusive governance frameworks that enhance citizens’ participation in decision-making processes. These measures can significantly contribute to both political stability and long-term economic prosperity in the countries under study.
