Political Stability as a Catalyst for Economic Growth: New Evidence from SAARC Economies

Abstract

This study examines the relationship between political stability and economic growth in selected South Asian Association for Regional Cooperation (SAARC) economies over the period 1996–2024. Using annual secondary data from the World Bank’s World Development Indicators and Worldwide Governance Indicators, the study employs panel-data techniques to analyze the role of political stability while controlling for investment, foreign direct investment, trade openness, inflation, domestic credit, labor-force participation, and human capital. The findings indicate a positive and statistically significant association between political stability and economic growth. The relationship remains positive across fixed-effects, robust, and dynamic model specifications. Furthermore, the panel ARDL/PMG results suggest that the long-run association is stronger than the short-run relationship. These findings highlight the importance of institutional stability, investment, and sound macroeconomic management in supporting economic growth across SAARC economies. However, the results indicate association rather than definitive causality.