AN ECONOMIC IMPACT OF POLITICAL INSTABILITY: AN EVIDENCE FROM PAKISTAN

Article history Received: April 04, 2021 Revised: April 22, 2021 Accepted: April 26, 2021 The economy of Pakistan has been badly damaged by the political instability in the country. Despite its enormous economic resources, Pakistan’s economy remained under dark shadows during most of its historical discourse. The economic indicators describe a significant relationship between politics and the economy of Pakistan. The following study, by reviewing previous studies, concludes that there is a negative relationship between political instability and economic growth in Pakistan from 2000 to 2019. Political instability flourished corruption and reduced the economic growth of the country. Moreover, a weak political system and government institutions could not resist the political tension in the country. The study finally concludes that political instability reduces economic growth in the country and economic growth reinforces political stability in the country.


INTRODUCTION
Pakistan The substantial nexus between political stability and economy has been the center of attention for many social scientists, philosophers, and economists. Aristotle had devoted two of his famous books to Politics (Goldsmith, 1987). Political instability can be defined as an unanticipated potential change in the government, political structure, and leadership of a country. The more regular power exchanges, the higher the political stability a country faces. Ake (1975) defined political instability as an irregular flow of political exchange. Political instability can also result from natural disasters such as floods, earthquakes, and famines (Dalby, 2018). One can alter or affect the decision-making patterns of the society, and it is also a type of political instability. A higher level of smooth political behavior in society discourages political instability. Consequently, there would be no more irresistible fluctuations and violations in the system. The interconnection between economic growth and political stability has been the center of policy-making in almost all the economies of the world. In recent decades developing countries are witnessing higher-level of political instability and lack of law and order. Since developing countries are characterized by low percapita GDP and national income, there are more frequent chances that these countries will fall prey to political instability. Barro (1991) showed the positive trends between political stability and economic growth rates in 98 countries. It would not be wrong to say that poor economic growth leads to backlash and political unrest in the country. But it is also true that political instability may impact economic activities and thus reduce economic development. As a result, many social scientists labeled the relationship between political stability and economy: a two-way relation (Husain, 2009;Paldam, 1998;Zablotsky, 1996). The relation between economic growth and political stability is more significant to study in the case of Pakistan, as Pakistan has been a victim of political instability since its independence. The shuffle of the military and civil regimes did not let the institutions work to their full potential. Swagel et al. (1992) found that economic growth is significantly affected in those countries where the propensity for government collapse is very high. A substantial change in government that does not involve a critical change in ideology or irregular power transfer also equally affects economic growth as that of a government collapse (Swagel et al., 1992). Sallahuddin and Awan (2017) found that two elements i.e. public debt and inflation rate, badly affect political stability. More debt creates instability which leads to a slowdown of economic growth and minimizes the GDP growth rate. Moreover, results, by using panel data, indicate that there is an inverse relationship between these two elements and political instability. Zouhaier and kefi (2012) found that investment and political instability interact negatively with each other. They studied the interaction on empirical grounds and found that political instability influences the behavior of people; the liability on private investment increases and people are reluctant to invest their money. This negative interaction increases unemployment and reduces productivity. Przeworski and Limongi (1993) concluded that political regimes do not affect economic growth significantly, while the stability of political institutions is of importance in whatever regime they are working. Some pieces of evidence showed that a liberal democratic system keeps the spirits of people high to investment. Pakistan has been a victim of political unrest and its economy is seen fluctuating in the course of its history. Aside from natural disasters and international politics, political unrest is a matter of serious concern that damaged the institutional structure at its extreme level (Fahad, 2018). Shehnaz (2018) concluded that political unrest has greatly damaged the economic institutions of Pakistan. This political unrest influenced the leaders to focus on short-run policies to remain in power. They find that economic growth in military regimes is better than that of democratic regimes. Tabassam et al. (2016) used elections, strikes, terrorism, and regime as the proxies of political instability and took GDP to measure economic growth. By using the data from 1988 to 2010, it is found that political instability has a profound negative impact on the GDP in Pakistan.  (2014); Cebula (2011);Feng (1997); Mueller (1982); Paldam (1998); Ramadhan et al. (2016), by using different data sets and statistical approaches, have found a significant positive effect of political stability on economic growth and vice-versa.
The following paper tries to address the economic complications that may arise due to political unrest in the country. The economy of Pakistan is shaped by politics on a larger scale. Both military and civil regimes have ruled Pakistan and the military is said to be the decision-maker under civil regimes too (Staniland et al., 2020;Rizvi, 1991). There is seen no significant change in economic growth during different political regimes. The economy of Pakistan has been lacking a stable growth trajectory for many years. There are many factors such as natural disasters, global economic recessions, social and political imbalances that can have a direct or indirect impact on economic growth. The present study focuses more on the political factors that are possible hindrances in the way of economic growth. Previous studies have also shown that political instability has affected the economic growth of many countries. Pakistan has also been a victim of political imbalance due to frequent change of government, coup d'état, and conflict among political parties. For this purpose, the study reviews the statistical and analytical reports to analyze the impact of political stability in context to the economic growth of Pakistan.

METHODOLOGY
The study is mainly an analysis of reports, books, and scholarly articles. This study was carried out in February 2021. A total of 30 studies were downloaded from Google Scholar and were carefully analyzed. In addition to this, the data on GDP growth, corruption index, and political stability index is taken from World Bank and World Governance Indicators and presented in the form of table and graphs.

Decade of 2000
Pakistan's economy remained under dark clouds for many reasons, and political instability is one of them. No election has been peaceful ever in the history of Pakistan. The past two decades have been the worst as compared to the whole economic and political history. Moreover, Pakistan remained almost 30 years under the direct control of military governments. Hassan (2011) highlighted that unstable government, weak political systems, inexperienced administrated staff, and regional conflicts are the causes that intrigue Pakistan's army to intervene in the system. The militarybureaucracy held dominant positions in Pakistan, which led to the failure of a parliamentary system. Moreover, Hossain (2000) mentioned some internal and external causes of the 1999 Marshal. The internal causes included weak political control and a high level of corruption among politicians, while external factors included the influence of international political bodies. On October 12 th , 1999, the Chief of army staff kicked off the PML-N government. He proclaimed Marshal Law and dismissed Prime Minister Nawaz Sharif forcefully. When Musharaf toppled the government, the economy was growing at the rate of 4.2 %. The people of Pakistan had a notion that military proclamation would be for a temporary time period and after the turmoil calms down, Musharaf would assist in holding an election for the National Assembly. Instead, he was forced to reinstate the National Assembly by the Supreme Court. In 2002, general elections of national and provincial assemblies were held, and the Muslim league Quaide-Azam won the election. During that time, Pakistan was also fighting the war against terrorism after 9/11. Terrorism incidents have changed the socioeconomic and geopolitical situation of Pakistan. The economic costs of terrorism are unfathomable in Pakistan, which includes the destruction of infrastructure, capital flight, and fewer exports, resulting in poor economic growth (Ali, 2010). Moreover, terrorism has also a negative impact on FDI inflows (Anwar & Afza, 2014). From 2001-2009, Pakistan incurred the direct and indirect cost due to incidents of terrorism amounted to US$ 50.10 billion which equivalents to Rs. 3508.8 billion. Detail is given in the Table 2. Yousufi and Islam (2018) discussed that the coalition of Pakistan and the USA against terrorism after the 9/11 incident led Pakistan into various social issues. It induced extremism and violence in society, which caused further terror attacks. Governmental instability and fragile policies caused the post 9/11 terrorism. During the government of Pakistan Muslim League Quaid-e-Azam, the GDP growth rate concerning annual changes is given in Figure 1. In 2002, a 2.5 % GDP rate was observed, less than that of previous years. In the next three years, economic growth was fair. The next National Assembly elections were supposed to be held in 2007 but President Musharaf declared a state of emergency and elections were postponed till 2008, which contributed to the GDP growth rate falling from 4.8% annual change to 1.7% annual change. In 2006 and 2007, a wave of terrorist attacks, including suicide attacks, killings, and assassinations, started destabilizing the country socially, politically, and economically. A significant blow-up of 2007 was the assassination of twice the prime minister of Pakistan and senior politician Benazir Bhutto. This incident showed the nation into a state of uncertainty. When Asif Ali Zardari became the President of Pakistan in 2008, the economic growth was residing at 1.7% due to political tension and corruption. The transition from military control to a democratic government was handled improperly. The ignorance towards economic and institutional policies caused macroeconomic instability, which left the country in the midst of a crisis. At that time, the global economy was also undergoing financial turmoil which negatively affected the foreign private inflows and the demand for exports from Pakistan also decreased. The two sitting prime ministers gave resign on account of corruption charges.
On the whole, economic performance remained satisfactory during Musharraf's tenure. The per-capita income increased twice the rate of population growth. But unfortunately, no significant impact on poverty has been observed (Dawn, 2007). Similarly, at the time of Marshal law, the score of control on corruption was at -0.8. This score has been fluctuating throughout his tenure. Meanwhile, an increase in the political stability index has been observed. In 2007

Decade of 2010
The tenure of the Pakistan Peoples' Party is known as the tenure of poor planning in Pakistan: because from 2008 to 2013, Pakistan's economic growth remained low and corruption increased. From 2008 to 2013 corruption index remained constant at -1. Moreover, political stability continued decreasing. In the last year of the PPP government, the economic growth rate was 4.3%, while control on corruption and political stability were at points -1 and -2.6, respectively. Pakistan has been facing Natural disasters since its emergence and these disasters have a massive cumulative effect on Pakistan's economy. In recent disasters, the floods of 2010, 2011, 2012, 2013, and 2014 were severe. The flood of 2010 also had some impact on the economy. This caused damage to 3.3 million ha of standing crops, 400 miles of railways, and more than 200 health facilities and caused a two percentage point reduction in GDP growth that year (Looney, 2012). The total estimated damages were 855 billion rupees which are equating to 5.8% GDP of 2009-10. The agriculture and housing sector was. Figure 4 shows the damages by provinces and Sindh was the worst affected 43% and Punjab, Balochistan, KPK, and AJK were affected by 26%, 6%, 12%, and 1%, respectively. In 2012, 5 million people, 14,270 villages, and 1.1 million acres of crops were affected by flooding. In August 2013, around 1.5 million people, almost 80,000 houses, and 1.5 million acres of crops were affected. Similarly, in 2014, the floods killed 367 people and affected more than 2.5 million people, and 129,880 houses were damaged or destroyed. Over 1 million acres of cropland and 250,000 farmers were affected .   (Mamoon et al., 2017). The foreign direct investment in Pakistan is also affected by the political situation in the country. A comparatively stable political situation attracts foreign investors, as seen during the power shift from military to civil government in 2008. Aside from the power shifting and natural disasters, political unrest in civilian government discouraged investors. It was seen in 2014-2015, FDI fluctuated badly due to Panama leaks when the respective PM was declared inefficient for the office. Qureshi et al. (2010) showed that political instability had affected the behavior of investors. The study has done Time Series analysis from 1972-2009 and estimated that political instability has a significant negative relation with domestic private investment in the short-run as well as in the long run. This negative relation between investment and political instability slowed down economic growth (Qureshi et al., 2010). In 2018, a general election was held and Imran Khan became the Prime Minister of Pakistan. In 2018, Pakistan witnessed a 5.9% growth rate while political stability and corruption index were at -2.26 and -0.7, respectively. After the election, all the opposition parties started protests against Khan's government all across Pakistan. The government signed an agreement with the IMF with strict conditions. The government set the highest tax target in history. As a result, just in year economic growth decreased to 1%.
It is obvious from the data that gross domestic income showed a steady flow during times of political instability. While the increase in gross domestic income was lower than expected due to political unrest that halted the growth and production in the country. A reduction in production increases unemployment, which in turn reduces gross domestic income. The political instability has not only a negative impact on economic growth but also threatened the sovereignty of Pakistan.

CONCLUSIONS AND RECOMMENDATIONS
It is concluded that political instability and economic growth interact in a negative manner with each other. Political unrest in Pakistan reduces economic growth and the inverse of it is also true. A weak government increases liability on the money of investors and investment in the country is reduced. The government is also incapable to control corruption. This reduces development and employment in the country. The stability of political institutions is important as compared to political regimes while discussing the economy of Pakistan. Therefore, Pakistan's economy performed better under different regimes when political institutions were stable. Political instability patronages the benefits of democracy. The democratic system should be allowed to run smoothly and responsible leadership and governmental accountability will provide stability that will eventually bring the system to equilibrium. With political stability, the social disorder will reduce and more investors will find it as an encouraging opportunity, promoting economic growth. Terrorism has been a barrier to achieve economic growth which has been addressed in the past and there should be no future compromise on that front. Governmental bodies should establish the objectives of the economy and formulate smart policies accordingly.