The interactive effect of geopolitical risk and natural resource rent on political instability: Evidence from Ghana.

Background: According to economists, political instability is regarded as a serious malaise harmful to economic development, which results in frequent switches of policies, creating instability to impede economic performance. The widespread political instability in many developing countries, along with its harmful effects on social welfare and economic performance, has heightened the interest of policymakers and economists in understanding the factors that contribute to political instability to inform better policy formulation. It is therefore imperative to examine the interactive effect of geopolitical risk and natural resource rent on political instability to provide strong empirical grounds for policy implementation. Objectives: This study employs a long time series dating from the period of 1824–2020 to examine how natural resource rent and geopolitical risk influence political instability in Ghana. First, we examine long‐run effects using linear methods. Second, we employ nonparametric methods to investigate the nonlinear link between natural resource rent and political instability as well as between geopolitical risk and political instability. Methods: The study applied linear methods and nonparametric methods to historical time series data dating from the period of 1824–2020. Results: The results from the linear methods show that the interaction of natural resource rent and geopolitical risk exerts a positive and larger impact on political instability compared to their separate effects. The results from the nonparametric methods show a weak nonlinear link between these variables (i.e., natural resource rent, geopolitical risk, and political instability), although consistent with the linear long‐run results, the links are positive. Conclusion: Overall, the results demonstrate that the observed positive relationship between natural resource rent and political instability is not just a recent phenomenon but holds for over more than 100 years in Ghana. Therefore, to attain a stable political environment, both long‐ and short‐term policies on political stability should be formulated. [ABSTRACT FROM AUTHOR]