Soaring COVID-19 infections, combined with mass uprisings around the world, are destabilizing global order — and new research from the International Monetary Fund (IMF) suggests the collective dynamic is likely to hinder a fragile recovery.
A working paper published by IMF researchers Luca Antonio Ricci, Metodij Hadzi-Vaskov and Samuel Pienknagura, PhD, recently explored the macroeconomic impact of social unrest, finding that “unrest events” are correlated to a decline in global economic output, while having a negative impact on “the lives and livelihoods of millions of persons around the world.”
The IMF’s latest Global Peace Index, released with the Institute for Economics & Peace, noted that the number of riots, general strikes and anti-government demonstrations around the world have skyrocketed by a “staggering 244 percent” in the last decade.
“A further breakdown of the data shows that the number of riots increased by 282 per cent while the number of general strikes increased by 821 per cent,” the authors wrote.
The study covered only the years up to 2019, so the coronavirus pandemic wasn’t factored into play, nor were recent instances of violent clashes and cascading political turmoil in places like war-torn Afghanistan, Cuba, and South Africa.
However, “recent trends could be further accentuated by the COVID-19 pandemic,” the authors wrote — suggesting the current upheaval worldwide may become a drag on global growth.
Amid festering socioeconomic ailments like racism, poverty, wealth inequality and stagnant wage, the surge in protests in both developed and emerging economies has sparked what the IMF authors called “sizable economic costs associated with episodes of social unrest, but the effects depend on country characteristics and on the nature of the event.”
On average, “economic activity declines following spikes in the unrest index,” a novel metric the researchers used to correlate economic performance with social disturbances, the report said.
The IMF study gives new significance to popular uprisings sweeping the globe, something author and historian Niall Ferguson recently described as a “cascade of disasters.” In places as disparate as the U.S., France, South Africa, Cuba and Haiti social unrest — which is becoming increasingly violent in some parts of the world — has become the order of the day.
It raises questions about how economies fare in the face of widening unrest.
The study showed that the economic impact of protests were affected by, among other things, “the strength of a country’s institutions and the ability to respond through economic policies—the policy space,” the authors told Yahoo Finance in an email.
Still, these results support a broad view of the general effect of unrest on the economy, and the criteria is not one-size-fits-all, the study’s authors cautioned. The degree to which social unrest negatively impacts economic performance varies depending on a number of factors.
“Gauging the impact of specific unrest episodes requires a granular understanding of the context in which the episode occurs, a task that goes beyond the scope of our study,” they told Yahoo Finance. “Moreover, extrapolating the messages from our study to specific unrest episodes may lead to erroneous conclusions.”
Lessons learned from global hotspots
Movements like the Arab Spring, which began in 2011, and Hong Kong protests that started in 2019 have contributed to the rise in global social unrest.
The series of protests and violent conflicts that occurred across the Middle East during the early 2010s,was one of the most notable incidents of social unrest of the past decade. Though the economic consequences of the Spring varied from state to state, virtually every nation affected saw low economic growth and high unemployment in the short-term.
In the months following Hong Kong’s initial protests against Beijing’s proposals to curtail the island’s freedoms, one of Asia’s most dynamic economies tumbled into a recession as the tourism sector faltered. Retailers and local businesses suffered as a result of property damage from protests as well as a fall in consumer spending. Investment declined as business sentiment suffered, and demand for property fell sharply.
Separately, the IMF paper also looked at demonstrations that followed former Mexican President Enrique Pe?a Nieto’s election in 2012. In that case, tens of thousands of people took to the streets in Mexico City to protest allegations of corruption and buying votes.
The IMF study characterized this incident as a “less significant shock equivalent to one standard deviation, which can reduce GDP by about 0.2 percentage points six months after the shock.”
How is social unrest measured?
To examine the level of social strife caused by an event, the study creates a metric called the ‘Reported Social Unrest Index’, or RSUI. The RSUI calculates the level of social unrest in a country by taking into account the number of articles published in major English language newspapers and networks in Canada, the UK and the U.S.
The study examined 89 countries, 32 of which were “advanced economies”, 57 of which were emerging markets/low-income countries, from the years 1990-2019. It excluded ‘fragile states’, or those states labeled as fragile states by the World Bank in at least one year since 2006. The RSUIs for each country were then plotted against quarterly GDP figures to track correlations.
While conditions and extenuating factors may differ, social unrest clearly lead to drops in production and consumption in a nation. The IMF researchers found that “unrest has an adverse effect on economic activity… driven by sharp contractions in manufacturing and services… and consumption.”
Some countries have accounted for more of the increase in social unrest than others, and can depend on the type of governance. The Carnegie Endowment for International Peace’s (CEIP) Global Protest Tracker found that, since 2017, more than 110 countries have experienced significant protests, with 78% of authoritarian or authoritarian-leaning countries having faced significant protests.
Countries that have weak institutions or are undergoing significant political turmoil were more likely to see heavy economic impact. Notably, advanced economies fared significantly better than emerging economies when it came to RSUI impact.
The largest protests tracked by the CEIP in the past few years were the aforementioned Hong Kong protests, with over 2 million participants at its peak, and the 2019 Evo Morales protests in Bolivia and 2016-17 South Korean candlelight protests, which each had around 1.5 million protesters, respectively.
The report’s findings suggested that “the adverse effects of social unrest are evident in all countries regardless of income levels, but the effect is twice as large” in emerging/developing economies relative to their advanced counterparts.
The underlying causes of social unrest can impact economic effects as well. The report studied protests with economic, political, and mixed causes, finding that all three types of events analyzed lead to “persistent reductions in economic activity.”
However, differences in the severity of those effects exist between events of different causes.
“Unrest episodes motivated by socio-economic issues lead to sharper GDP contractions than episodes related to politics/election,” the report found. “Episodes triggered by a combination of socio-economic and political factors are associated with largest GDP contractions.”
To be certain, not all protests are created alike — and in the long run, some can actually be beneficial. However, the IMF’s study underscores how uprisings have clear interim implications for their respective countries.
“Public protests can be an important expression of the need to change policy,” the authors told Yahoo Finance. “Our study shows that they can come with short- to medium-term economic costs. However, protests can also have long-term economic consequences, which we do not quantify in our study.”
Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.
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