Nexus Between Political Stability and Economic Stability: Case Study of Arab Countries

Abstract

The research aims to Explain and measure measure the impact of political stability on economic stability and identify the direction of the reciprocal relationship between the two, focusing on 15 Arab countries during a period marked by significant political and economic transformations from 1996 to 2022. The researcher employed a model that considers the influence of political stability on financial stability, using the Political Stability Index from the World Bank (2022) WGI and the GDP growth rate as a representative indicator of economic stability, sourced from the World Bank (2022) WDI. The study also accounted for other variables that influence political and economic stability, incorporating them as control variables in the model. Population growth (annual %) Average years of schooling for the population is 25+, Control of Corruption, Gross capital formation (% of GDP)
The study utilized the Autoregressive Distributed Lag (ARDL) model with the Pooled Mean Group (PMG) approach to analyze both short- and long-term relationships and the "Toda-Yamamoto" method was employed to test causality between political and economic stability. The results indicate a positive long-term relationship between political and economic stability, with causality tests confirming a bidirectional relationship. Finally, the findings suggest that political stability is a crucial factor in achieving economic stability in Arab countries and vice versa, indicating that improvements in either can strengthen the other.