The Macroeconomic Impact of Social Unrest

37 Pages Posted: 14 May 2021 Last revised: 14 Jul 2021

See all articles by Metodij Hadzi-Vaskov

Metodij Hadzi-Vaskov

International Monetary Fund (IMF)

Samuel Pienknagura

International Monetary Fund (IMF)

Luca A. Ricci

International Monetary Fund (IMF) - Research Department

Date Written: May 2021

Abstract

This paper explores the macroeconomic impact of social unrest, using a novel index based on news reports. The findings are threefold. First, unrest has an adverse effect on economic activity, with GDP remaining on average 0.2 percentage points below the pre-shock baseline six quarters after a one-standard deviation increase in the unrest index. This is driven by sharp contractions in manufacturing and services (sectoral dimension), and consumption (demand dimension). Second, unrest lowers confidence and raises uncertainty; however, its adverse effect on GDP can be mitigated by strong institutions and by a country's policy space. Third, an unrest event, which is captured by a large change in the unrest index, is associated with a 1 percentage point reduction in GDP six quarters after the event. Impacts differ by type of event: episodes motivated by socio-economic reasons result in sharper GDP contractions compared to those associated with politics/elections, and events triggered by a combination of both factors lead to sharpest contractions. Results are not driven by countries with adverse growth trajectories prior to unrest events or by fiscal consolidations, and are robust to instrumenting via regional unrest.

JEL Classification: D74, F50, O11, O47

Suggested Citation

Hadzi-Vaskov, Metodij and Pienknagura, Samuel and Ricci, Luca Antonio, The Macroeconomic Impact of Social Unrest (May 2021). CEPR Discussion Paper No. DP16152, Available at SSRN: https://ssrn.com/abstract=3846286

Metodij Hadzi-Vaskov (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Samuel Pienknagura

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Luca Antonio Ricci

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6007 (Phone)
202-623-4072 (Fax)

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