Investors needn't fret.

Photographer: Emrah Gurel/AP Photo

Coups Don't Depress Economic Growth

Tyler Cowen is a Bloomberg View columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include “Average Is Over: Powering America Beyond the Age of the Great Stagnation.”
Read More.
a | A

As the chaos in Turkey is starting to clear, investors are asking what the failed coup might mean for the country’s economic future. The news stories show many conflicting elements in play, and right now it is hard to make specific verifiable claims about what the country can expect. We can, however, turn to the broader historical record, and that suggests failed coup attempts against democratic governments don’t much lower subsequent rates of economic growth in those countries.

Assistant Professor and economist Erik Meyersson of the Stockholm Institute for Transition Economics has produced the most comprehensive look at this question, in a 2016 working paper titled Political Man on Horseback Coups and Development. His data allow us to look at autocratic versus democratic coups, and also at successful versus failed coups from 1955 to 2001. The early cut-off point is necessary to estimate the subsequent growth effects of coups.

QuickTake Turkey's Continental Divide

In autocracies, successful coups often improve economic performance, perhaps by replacing an incompetent or malevolent leader. In democratic countries, however, a successful coup is associated with lower per capita growth rates by an average of 1 to 1.3 percentage points per year over the following decade. On average, these coups reverse beneficial economic reforms, especially for the financial sector.

When a coup does overthrow a democratically elected government, it tends to bring a military leader and significant changes in policy, and not usually for the better. There are long-run correlations of such successful coups against democracies with lower investment, lower schooling and higher infant mortality.

The recent coup in Turkey failed in less than 24 hours, and for failed coups in democracies the more general historical results are quite different. In fact, they are difficult to distinguish from no economic growth effects at all. Given the various imprecisions of statistics, this does not prove that failed coups will have no growth effects, but it can be said that the numbers give us no clear reason to be worried, at least not over the 10-year time horizon chosen by Meyersson. This may be one reason why asset markets do not seem to be panicking over the failed Turkish coup attempt.

To be sure, there are some possible or even likely short run effects of the recent turmoil, such as declines in tourism or foreign investment. Still, the data as a whole are showing that the long-run fundamentals of democracies with failed coups tend to reassert themselves within the 10-year time horizon, and those short-run disruptions end up mattering less than we might think.

Coups in democracies and coups in autocracies have different consequences on average. In an autocracy, a coup is sometimes a normal or an accepted way of changing power from one set of hands to another. But when a coup succeeds in a democracy, that is a signal that the normal institutions for transitions of power are dysfunctional, and the coup is also a sign they cannot be repaired simply. A coup in a democracy is therefore a more significant event, at least for economic growth, and so it is especially important that such an attempt fail.

When a coup in a democracy fails, there are two conflicting signals. The negative news is that such a coup was thought possible at all. The more positive news, at least for stability, is that the democratic government was in fact able to beat back the rebellion, as indeed was the case in Turkey. At least on average, there seems to be a balancing effect here.

Turkey's Economic Ups and Downs
Real GDP, annual year-on-year percentage change
 
Source: Bloomberg

One myth about coups is that they follow long periods of economic decline. This is often true for coups in autocracies, but not in democracies. If anything, coups in democracies often follow periods of significant economic growth, though sometimes with a crisis at the very end of the positive run. That was the case for the Chilean coup of 1973 and also the Turkish coup of 1980. As of late, Turkey has been growing at rates in the neighborhood of 4 percent, hardly a miserable performance.

The economic angle does not capture all of the social and political effects of coups, including for instance on religion, gender, legal systems, international standing, and many other variables. Furthermore, what is true for other countries with coups, viewed on average, won’t necessarily be true for Turkey today. Still, if we are looking for a reason to feel some smidgen of reassurance, Meyersson’s study can give us some comfort in what is otherwise a troubling time for both Turkey and its region more generally.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Tyler Cowen at tcowen2@bloomberg.net

To contact the editor responsible for this story:
Jonathan Landman at jlandman4@bloomberg.net