Cover IMF Working Papers
The Impact of Conflict and Political Instability on Banking Crises in Developing Countries
Author:
Ali Compaorénull

Search for other papers by Ali Compaoré in
Current site
Google Scholar
PubMedClose
,
Mr. Montfort Mlachila
Search for other papers by Mr. Montfort Mlachila in
Current site
Google Scholar
PubMedClose
,
Rasmané Ouedraogonull

Search for other papers by Rasmané Ouedraogo in
Current site
Google Scholar
PubMedClose
, and
Sandrine Sourouemanull

Search for other papers by Sandrine Sourouema in
Current site
Google Scholar
PubMedClose
Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 041
Language:
English
Publication Date:
28 Feb 2020
DOI:
https://doi.org/10.5089/9781513530055.001
ISBN:
9781513530055
ISSN:
1018-5941
Pages:
40
Keywords:
WP; banking crisis; fiscal crisis; government crisis; state fragility index; conflict; political instability; banking crises; fiscal crises; liquidity shortage; countries matter; banking turmoil; economic growth; banking liquidity shortage; occurrence of a banking crisis; systemic banking crisis; terms of trade; experiencing banking crisis; Commercial banks; Systemic crises; Terms of trade; Logit models; Sub-Saharan Africa; Global; banking crises in year; occurrence of banking crisis; start of a banking crisis
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (1.4 MB) Download Epub
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.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2020: Issue 041