Why is political stability important for the economy?
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Political stability and economic development are deeply interconnected. The relationship between economic growth and stability refers to the manner in which the political stability of a nation can lead to its economic growth. The common denominator and the most obvious relationship between economic growth and stability is the fact that a stable environment fosters economic growth.
The uncertainty associated with an unstable political environment may reduce investment and the speed of economic development. On the other hand, poor economic performance may lead to government collapse and political unrest. A politically unstable environment usually means that the government is misusing or mismanaging the country’s resources: resources are not being used to their full capacity, or in a manner whereby economic development could be maximized. It is also right that if a country’s political environment is volatile, this will deter investors, foreign trade and economic development.
One of the ways in which economic growth and political stability are related is in the area of investment. No company or individual, whether local or international, will feel comfortable making any kind of capital investment in any country where the political climate is characterised by upheavals and a lot of uncertainty. This is because such a risky investment would go against the main aim of making profits since there would be a marked lack of guarantee as to the safety of the investments. When local businessmen refrain from making any significant investment in their economies, such a situation will affect the economy as a whole.
Foreign direct investment also plays an important role in the development of an economy. This shows a link between economic growth and stability because a country with a low rating in terms of stability will not be a source of attraction for investors looking for international markets in which to invest. An example can be seen in the area of tourism, because when there is a lack of stability in the economy there will be little investments in the form of hotels, tourist attractions and commercial airlines. The result of this is a reduction in the number of employed people and a lower turnover rate for much-needed finances to facilitate economic development.
The uncertainty associated with an unstable political environment may reduce investment and the speed of economic development. On the other hand, poor economic performance may lead to government collapse and political unrest. A politically unstable environment usually means that the government is misusing or mismanaging the country’s resources: resources are not being used to their full capacity, or in a manner whereby economic development could be maximized. It is also right that if a country’s political environment is volatile, this will deter investors, foreign trade and economic development.
One of the ways in which economic growth and political stability are related is in the area of investment. No company or individual, whether local or international, will feel comfortable making any kind of capital investment in any country where the political climate is characterised by upheavals and a lot of uncertainty. This is because such a risky investment would go against the main aim of making profits since there would be a marked lack of guarantee as to the safety of the investments. When local businessmen refrain from making any significant investment in their economies, such a situation will affect the economy as a whole.
Foreign direct investment also plays an important role in the development of an economy. This shows a link between economic growth and stability because a country with a low rating in terms of stability will not be a source of attraction for investors looking for international markets in which to invest. An example can be seen in the area of tourism, because when there is a lack of stability in the economy there will be little investments in the form of hotels, tourist attractions and commercial airlines. The result of this is a reduction in the number of employed people and a lower turnover rate for much-needed finances to facilitate economic development.
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