Felipe Starosta de Waldemar attended the CSAE Conference 2017: Economic Development in Africa, hosted by the CSAE at the Department of Economics of Oxford University, on March 19th to 21th 2017. He presented his paper “On the Economic Consequences of Political Instability: Evidence from Mozambican Firms”, written in collaboration with Patrick Domingues.
This paper investigates the impact of regional political instability, defined as surprise electoral results, on firm performance. We combine an original Mozambican database of election results with a national geo-localized firm survey, and we perform a difference-in-difference analysis. Our empirical strategy relies on a comparison between treated (localities where the wining party changed between two different elections) and control groups (localities where the winning party remained the same). This strategy overcomes many of the traditional limitations, such as the control of unobserved characteristics, as we introduce firm fixed effects. The results show that firms facing political instability performed significantly worse after electoral shocks. This result is robust to different measures of economic performance, outliers, a falsification test and the use of a semiparametric difference-in-difference estimator. This finding suggests that in a context of weak political and economic environments, political instability is a binding constraint for economic growth.