Macroeconomic effects of political instability in the WAEMU: an analysis of investment efficiency

This article analyses the macroeconomic effects of political instability through the efficiency of domestic investment in the countries of the West African Economic and Monetary Union (WAEMU). The estimation method considered in this analysis is the Autoregressive Distributed Lag (ARDL) method. The analysis uses panel data covering the period from 2002 to 2021. This work differs from previous work because it captures the efficiency of investment using the incremental capital output ratio (ICOR) which is appropriate for low-income countries. In addition, this work takes into account the long-run view that is appropriate for macroeconomic analysis of political instability. The results reveal that, in the long term, political instability reduces the efficiency of domestic investment, public investment and private investment. The results suggest that the macroeconomic efficiency of domestic investment should be sought by combating political violence, government instability and internal conflicts, which are three key indicators of political instability. The results also suggest that emphasis should be placed on protecting private investment, which is more vulnerable than public investment in the context of political instability in the WAEMU.