Interlinkages among Terrorism, Macroeconomic Instability, Political Instability, and Economic Growth in Pakistan

Abstract

This study attempts to establish the relationship between three types of instabilities and economic growth. Political instability, macroeconomic instability, terrorism, and economic growth are analyzed for the period of 1970 to 2019 in Pakistan. The study constructs the indices of the above-mentioned variables by adding some new variables. Results show that terrorism, political instability, macroeconomic instability, and GDP per capita have long-run associations. GDP per capita and political instability is positively related to terrorism. It indicates that political instable environment paves the way for terrorists to achieve their targets in Pakistan. However, the positive association of GDP per capita to terrorism is due to uneven income distribution pattern. It stimulates deprived groups to become a part of violent activities. Furthermore, results show that macroeconomic performance of a country has no significant effect on terrorist activities but persistent poor performance increases the probability of terrorism. Therefore, in the long-run, macroeconomic instability has positive influence on terrorism. Causality relationships indicate no link between political instability and macroeconomic instability. However, terrorism causes both political and macroeconomic instability in Pakistan.

Macroeconomic Instability and Terrorism Nexus; Empirical Evidence in Case of Pakistan

“…Similarly, the study of Shamshir et al (2019) shows that inflation decreases the purchasing power and results in deprivation of basic need, therefore, it causes higher terrorism. The study of Naz et al (2021) also investigated the relationship between macroeconomic instability and terrorism by using ARDL approach. The results show the presence of long-run association among terrorism, macroeconomic instability, political instability, and GDP per capita in Pakistan.…”

“…External debt, budget deficit, REER can be associated with management policies and the composition of government expenditure. It has direct implications on socioeconomic variables Hussain et al, 2016 andNaz et al, 2021) which consequently affects terrorist activities. The relationship between indicators of macroeconomic instability and terrorism is displayed in Figure 1.…”

Examining the effect of liquidity creation on banking profitability and stability: moderating role of political instability

“…Normally, banks create liquidity by converting their liquid asset into illiquid liabilities or financing their illiquid assets into the liquid liabilities (Berger and Bouwman, 2009). However, the liquidity position that leads to the profitability and stability of banks is affected strongly in the presence of unstable political situation as history deliberated that political instability is always remains the looming issue of Pakistan since independence (Ali Ahmed, 2020;Ahmadani and Noonari, 2022;Naz et al, 2020;Nadeem et al, 2021). Political instability is the state where the country's sources are not properly managed or used for some potential purpose (Asiedu, 2000).…”