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The Impact of Conflict and Political Instability on Banking Crises in Developing Countries

Author

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  • Ali Compaore

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UCA [2017-2020] - Université Clermont Auvergne [2017-2020] - CNRS - Centre National de la Recherche Scientifique)

  • Montfort Mlachila

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UCA [2017-2020] - Université Clermont Auvergne [2017-2020] - CNRS - Centre National de la Recherche Scientifique)

  • Rasmané Ouedraogo

    (IMF - IMF - International Monetary Fund)

  • Sandrine Sourouema

Abstract

While there is an extensive literature examining the economic impact of conflict and political instability, surprisingly there have been few studies on their impact on the probability of banking crises. This paper therefore investigates whether rising conflict and political instability globally over the past several decades led to increased occurrence of banking crises in developing countries. The paper provides strong evidence that conflicts and political instability are indeed associated with higher probability of systemic banking crises. Unsurprisingly, the duration of a conflict is positively associated with rising probability of a banking crisis. Interestingly, the paper also finds that conflicts and political instability in one country can have negative spillover effects on neighboring countries’ banking systems. The paper provides evidence that the primary channel of transmission is the occurrence of fiscal crises following a conflict or political instability.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Ali Compaore & Montfort Mlachila & Rasmané Ouedraogo & Sandrine Sourouema, 2020. "The Impact of Conflict and Political Instability on Banking Crises in Developing Countries," Working Papers halshs-02499068, HAL.
    • Handle: RePEc:hal:wpaper:halshs-02499068
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02499068
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    Cited by:

    1. Jannils Łukasz, 2021. "The concept of political instability in economic research," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 57(3), pages 268-284, September.
    2. Compaoré, Ali, 2022. "Access-for-all to financial services: Non-resources tax revenue-harnessing opportunities in developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 236-245.
    3. Claudia Custodio & Bernardo Mendes & Diogo Mendes, 2021. "Firm responses to violent conflicts," NOVAFRICA Working Paper Series wp2106, Universidade Nova de Lisboa, Nova School of Business and Economics, NOVAFRICA.
    4. Oumniya Amrani & Amal Najab, 2022. "The Impact of Multi-Layer Corporate Governance on Banks’ Performance under the GFC and the COVID-19: A Cross-Country Panel Analysis Approach," JRFM, MDPI, vol. 16(1), pages 1-25, December.
    5. Ali Compaore, 2020. "Access-for-all to Financial Services: Non- resources Tax Revenue-harnessing Opportunities in Developing Countries," Working Papers hal-02901664, HAL.
    6. Amoako, Frimpong & Asuamah Yeboah, Samuel, 2023. "Community Voices and Financial Choices: Unravelling the Impact of Representation on Rural Cooperative Banks," MPRA Paper 118634, University Library of Munich, Germany, revised 17 Sep 2023.
    7. Mohamed Maher & Yanzhi Zhao, 2022. "Do Political Instability and Military Expenditure Undermine Economic Growth in Egypt? Evidence from the ARDL Approach," Defence and Peace Economics, Taylor & Francis Journals, vol. 33(8), pages 956-979, November.

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