Political Instability, Indices of

Updated About encyclopedia.com content Print Article Share Article
views updated

Political Instability, Indices of

INDICES OF POLITICAL STABILITY

PERCEPTIONS INDICES

USE OF INDICES IN ACADEMIC WORK

BIBLIOGRAPHY

Political instability can be defined in at least three ways. A first approach is to define it as the propensity for regime or government change. A second is to focus on the incidence of political upheaval or violence in a society, such as assassinations, demonstrations, and so forth. A third approach focuses on instability in policies rather than instability in regimes (i.e., the degree to which fundamental policies of, for instance, property rights are subject to frequent changes).

INDICES OF POLITICAL STABILITY

Just as there are a number of definitions of political instability, there are also a number of indices designed to measure the level of political instability in countries. Some of these indices have been developed primarily for academic or policy purposes, such as the POLITY indices and the World Bank governance indices. The inclusion of objective data on political violence, such as the number of assassinations and demonstrations, in data sets for academic studies is common.

There are a number of other indices that have been developed primarily to inform international investors of the political risk involved in investing in various countries. A number of companies and institutions offer these types of indices; they include the Political Risk Services (PRS) groups International Country Risk Guide [ICRG] indices; Business Environment Risk Intelligence (BERI); the Economist Intelligence Unit; Moodys and many more.

Finally, there are a number of more specialized indices of phenomena that relate to political instability, such as the Corruption Perceptions Index of Transparency International, and the political risk and civil liberties indices of Freedom House.

The available indices relate to the various definitions of political instability in different ways. The POLITY data contain indices of regime transition and durability, reflecting the first definition. The objective indices of political violence included in the 1997 dataset of William Easterly and Ross Levine are more in line with the second definition. Indices such as those in the ICRG encompass several of the definitions, including instability in terms of potential policy volatility.

The indices broadly fall into two categories in terms of how they are developed. On the one hand there are the objective indices, which typically collect count data on the incidence of certain phenomena (e.g., demonstrations, revolutions, assassinations, and more). On the other hand, perceptions indices, which use expert opinion or surveys, gauge the assessments and insights of certain groups on the degree of political stability in a country.

PERCEPTIONS INDICES

The design of objective indices of political instability does not require much explanation. For perceptions indices, however, the methodology must be examined more closely. Following is a detailed account of two sets of indices that are frequently used in academic studies; the ICRG indices and the World Bank governance indices developed by Daniel Kaufmann and his colleagues.

The ICRG rating comprises three subcategories of risk: political, financial, and economic. The political risk rating includes twelve weighted variables covering both political and social attributes. The twelve variables are: government stability; socioeconomic conditions; investment profile; internal conflict; external conflict; corruption; military in politics; religious tensions; law and order; ethnic tensions; democratic accountability; and bureaucracy quality. The score on each variable is set by experts based on available information, and is thus based on subjective judgment. The ICRG indices provide monthly data for 140 countries, starting in 1984.

The World Bank governance indices measure six dimensions of governance: voice and accountability; political instability and violence; government effectiveness; regulatory quality; rule of law; and control of corruption. The index of political instability and violence measures the likelihood of violent threats to, or changes in, government, including terrorism. The indices are based on 352 individual variables measuring perceptions of governance, drawn from thirty-seven separate data sources constructed by thirty-one organizations. The sources include inter alia the ICRG indices. The governance indices cover 209 countries and territories for 1996, 1998, 2000, 2002, and 2004.

USE OF INDICES IN ACADEMIC WORK

Indices of political instability are employed in many cross-country empirical studies, which are generally of two types. In one type of studies, political instability is the dependent variable, whose variation is explained by other variables. These kinds of studies are typically conducted in the discipline of political science. In other studies, political instability is an independent variable. This type of analysis is common in the field of economics, where political instability is related to such dependent variables as growth or investment.

In the first type of study, researchers, for instance, seek to establish a link between inequality and political instability. Early studies of this kind use objective indices of political violence as their dependent variable. In later studies such as that of Philip Nel in 2003, objective indices of violence are complemented by the Kaufmann political stability index.

A similar development is apparent in economic studies using political instability as an independent variable. Such studies have shifted emphasis from analyzing political stability in the traditional sense towards institutions. Early studies of growth, such as the 1992 work of Levine and David Renelt, find that the number of revolutions and coups has a robust influence on investment, which in turn influences growth. Daron Acemoglu and his colleagues used indices from the PRS group and POLITY to test the impact of institutions on growth. In the investment literature, Alberto Alesina and Roberto Perotti and Jakob Svensson use indices of political unrest and violence, and indices of government change, as independent variables. Aymo Brunetti and Beatrice Weder, however, include both objective measures and perceptions indices such as those of the ICRG. Moreover, in early-twenty-first century studies of foreign direct investment (FDI), researchers frequently use perceptions indices. Steven Globerman and Daniel Shapiro use the Kaufmann governance indices to explain the pattern of FDI across countries, while Philipp Harms and Heinrich W. Ursprung use a set of ICRG indices for the same purpose.

SEE ALSO Conflict; Ethnic Fractionalization; Political Science; Revolution; World Bank, The

BIBLIOGRAPHY

Acemoglu, Daron, Simon Johnson, and James A. Robinson. 2001. The Colonial Origins of Comparative Development: An Empirical Investigation. American Economic Review 91 (5): 13691401.

Alesina, Alberto, and Roberto Perotti. 1996. Income Distribution, Political Instability, and Investment. European Economic Review 40: 1203-1228.

Brunetti, Aymo, and Beatrice Weder. 1998. Investment and Institutional Uncertainty: A Comparative Study of Different Uncertainty Measures. Weltwirtschaftliches Archiv 134 (3): 513533.

Easterly, William, and Ross Levine. 1997. Africas Growth Tragedy: Politics and Ethnic Divisions. Quarterly Journal of Economics 112: 12031250.

Globerman, Steven, and Daniel Shapiro. 2002. Global Foreign Direct Investment Flows: The Role of Governance Infrastructure. World Development 30 (11): 18991919.

Harms, Philipp, and Heinrich W. Ursprung. 2002. Do Civil and Political Repression Really Boost Foreign Direct Investment? Economic Inquiry 40 (4): 651663.

Kaufmann, Daniel, Aart Kray, and Massimo Mastruzzi. 2005. Governance Matters IV: Governance Indicators for 19962004, World Bank Policy Research Paper 3630. Washington, DC: World Bank.

Levine, Ross, and David Renelt. 1992. A Sensitivity Analysis Of Cross-Country Regressions. American Economic Review 82 (4): 942963.

Muller, Edward N., and Mitchell A. Seligson. 1987. Inequality and Insurgency. American Political Science Review 81 (2): 425452.

Nel, Philip. 2003. Income Inequality, Economic Growth, and Political Instability in Sub-Saharan Africa. Journal of Modern African Studies 41 (4): 611639.

Svensson, Jakob. 1998. Investment, Property Rights and Political Instability: Theory and Evidence. European Economic Review 42: 13171341.

Wang, T. Y., William J. Nixon, Edward M. Muller, and Mitchell A. Seligson. 1993. Inequality and Political Violence Revisited. American Political Science Review 87 (4): 979994.

Ivar Kolstad