IMPACT OF POLITICAL STABILITY ON INCOME AND FOREIGN DIRECT INVESTMENT: AN EMPIRICAL EVIDENCE FROM MIDDLE-INCOME COUNTRIES

Abstract

The aim of this research thesis is to examine the impact of political stability on per capita income and investment. The study attempts to resolve the contradiction prevailing in the literature on the relationship between political uncertainty and income and investment. For this purpose, the study uses political stability index and government effectiveness index as core variables while controlling the effects of trade, urban population, primary school enrollment and inflation. The data are selected for 54 lower middle-income countries and 55 upper middle-income countries for the time period 1995 2021. Static regression analysis is applied to examine the impact of political stability on per capita income and investment. The results reveal that in middle income countries, political stability and government effectiveness can enhance per capita income, but it does not affect foreign direct investment.