Does Political Stability Matter for the UK and the USA? The Time Variant Analysis through Rolling Window Causality Approach

The study aims to examine the time-varying causality between political stability and economic growth. Secondly, study also evaluates the effect of political stability on economic growth of the United Kingdom and the United States. Therefore, a time-series model is proposed to assess the framework’s constancy with time, which assumes that the coefficients are stable throughout time. A rolling window technique has been applied to the dataset from the year 2002 to 2019, respectively. The results indicate that the time-varying positive bidirectional causality is present between political stability and economic growth for a particular subsample, verifying the effect of political stability on economic growth and vice versa. Hence, our results exhibit that the connection between two-series would benefit the economy due to the positive yet significant relationship. Therefore, uncertain political conditions would directly affect the economy’s growth rate in terms of tourism, currency value, investment, and other growth factors. Whereas, if the uncertainty regarding the political environment reduces, it would be advantageous for economic development.