Journal of Institutional Economics (2020), 16, 883–910 doi:10.1017/S174413742000020X RESEARCH ARTICLE Political instability, institutional change and economic growth in Brazil since 1870 Nauro Campos1,2,3, Menelaos Karanasos4*, Panagiotis Koutroumpis5 and Zihui Zhang4 1University College London, London, UK, 2ETH Zurich, Zurich, Switzerland, 3IZA-Bonn, Bonn, Germany, 4Brunel University London, London, UK and 5Queen Mary University London, London, UK *Corresponding author. Email:
[email protected] (Received 10 December 2018; revised 11 April 2020; accepted 19 April 2020; first published online 1 June 2020) Abstract Are institutions a deep cause of economic growth? This paper tries to answer this question in a novel man- ner by focusing on within-country variation, over long periods of time, using a new hand-collected data set on institutions and the power-ARCH econometric framework. Focusing on the case of Brazil since 1870, our results suggest (a) that both changes in formal political institutions and informal political instability affect economic growth negatively, (b) there are important differences in terms of their short- versus long-run behaviour, and (c) not all but just a few selected institutions affect economic growth in the long-run. Keywords: Economic growth; institutions; political instability; power-ARCH; volatility JEL Classification: C14; O40; E23; D72 1. Introduction How does institutional change affect economic growth? This paper explores a new hand-collected data set and within country variation over extremely long-time horizons using an uncommon econometric framework to assess the effect of political instability on the growth rate of gross domestic product (GDP). We focus on both direct changes in formal political institutions and on potential indirect changes through political instability.