Macroeconomic determinants of political stability in European Union member transition Economies

The relationship between political stability and macroeconomic determinants is a frequently discussed topic in economic theory in recent years. In this study, the relation between political stability and macroeconomic determinants for transition economies namely Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia, Romania and Bulgaria, which are members of European Union, with annual data of 2002-2017 period was investigated by panel data analysis method. In the empirical analyzes, political stability was used as a dependent variable and gross domestic product per capita, commercial opening rate, consumer price index and unemployment rate were used as independent variables, and in order to show the the dates of membership to the union dummy variable was utilized. According to the results of empirical analysis made by using current panel data econometrics, a positive correlation between political stability and consumer prices index and puppet variable, and a negative correlation between the gross national product per capita, trade openness and unemployment rate were found. By unit root test, since the economic structures of the countries change in time, the effects of the economic shocks decrease slowly and show long term memory. According to the panel vector autoregression model, there is causality from trade openness ratio to consumer prices index, and according to the panel error correction model there is a long term causality from the puppet variable that shows the European Union membership, from the gross national product per capita, from unemployment rate, from trade openness ratio and consumer prices index to political stability as a whole. On country basis, causality relations have been found from political stability to gross national product per capita for Bulgaria and Slovak Republic; from trade openness to political stability for Bulgaria and Estonia; from consumer prices index to political stability for Latvia and Poland; from the puppet variable showing the European Union membership to the political stability for Lithuania, Latvia and Slovenia; from unemployment rate to political stability for Latvia, Estonia and Slovenia.