How Does Political Instability Affect Economic Growth

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How does political instability affect the economic growth? Explain with practical examples? Answer: Political Instability: Political Instability is a situation under which a country is politically fluctuating unpredictably. This kind of situation may arise due to different reasons which may include: i. When the rights and freedom of people are not taken care of. ii. When the leaders are involved in corruption and mismanagement of national wealth. iii. When elections are not free and fair, etc. Effectsof Political Instability on Economic Growth: Political instability can demolish a country’s economy. It can have drastic effects on the economy of a country like decrease in investments, decrease in GDP, and increase in inflation, etc. Some of these are discussed below: i. Decrease in Investments: Political instability increases the risk that investments will not work out; hence the investors cease to invest in politically unstable countries.Investment is what increases the productive capacity of economies and enhances growth. For Example: Due to the political instability in Pakistan from mid-August, 2014, the loan which IMF agreed to lend to Pakistan worth $6.6 billion over a period of three years is in jeopardy. An IMF team has already cancelled a visit to Pakistan because of the protests that turned violent as Prime Minister refused to resign. ii. Decrease in GDP: GDP of a country is measured as the monetary value of all the finished goods produced within a country
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