Political (In)stability for Economic Development

Explanation• Development refers to an improvement in living standards in an economy

encompassing material consumption, education, health and environmental concerns• Development focuses attention on the individual and on the three dimensions of

wellbeing:– Health: the ability to live a long and healthy life– Education: the ability to read, to write and to acquire knowledge– Income: the income needed for a decent life

Explanation (Continued)…

• Political stability is the most important attribute of a modern state• If the political system is stable and they have everything all figured out they

will know what is best for the economy• Money is almost the biggest issue where a stable government can help get

what the people need and want

• Political stability and absence of violence measures “the perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including domestic violence and terrorism”

Application to Economic Development

• Political uncertainty is a nightmare for investors• It disturbs the flow of foreign direct investment plans into private and

public sectors, which will surely affect economic growth• Corruption and political instability hinder investment and capital

accumulation in a country and make it difficult for a country to embark on long-term necessary reforms

• It can be argued the other way around – good economic growth essentially leads to political stability

Application to Economic Development (Continued)…• Income inequality makes it difficult

to reach consensus among population groups

• This will make necessary institutional and economic reforms difficult for a government to undertake

• Income inequality increases the probability of civil unrest, which increases the risks to both domestic and foreign investments in the country.

• Increases the likelihood of corruption• Existence of poor people means no

access to education and health resources to become productive members of society

Application to Economic Development (Continued)…

• Investment into physical capital like new factories, machineries and equipments.• This increases the physical stock of capital.• Public investments into roads, ports, communications, power supplies, water and

sanitation facilitate and lower the cost of economic activity.

• Good laws that are enforced also reduce human rights abuses, gender inequality and the degree of corruption in society.

• Investments into health and education can help make income distribution more equitable and prevent political unrest.

Example – Thailand’s Political Instability

• Foreigners now have to regularly check for security advices issued by their government travel advisory.

• Aside from several roads being blocked and occupied across the nation, foreign embassies were closed due to escalation in tensions.

• Numerous casualties were reported after the long-standing incident.

Example – Thailand’s Political Instability + Affected Economy

• Infrastructure programs were postponed• Decrease in consumer confidence, as predicted, while business are severely affected• Tourists going to Thailand have directed their interest to outlying countries• Foreign investment impacted, and foreigners relocating investments to neighboring countries• Redshirt occupation of Rachaprasong Intersection (Bangkok’s business center) cost the

economy roughly 11 billion baht• Yellow shirt occupation of both International Airports in Bangkok cost the economy roughly

210 billion baht• Prevented 4 million tourists from visiting Thailand

Citations

• http://www.bangkokpost.com/opinion/opinion/28438/airport-fiasco/page-3/

• http://www.economist.com/node/16015331?story_id=16015331&source=hptextfeature

• http://info.worldbank.org/governance/wgi/pdf/pv.pdf

• http://www.southasiaanalysis.org/%5Cpapers%5Cpaper81.html

• http://findarticles.com/p/articles/mi_m0254/is_1_61/ai_84426604/