Economic analysis can shed clear light on the causes and consequences of social unrest
The past decade has seen a series of high-profile social protests, including the Arab Spring, Black Lives Matter, Gilets Jaunes, and Occupy Wall Street, to name a few. was characterized by. However, although there has been much exploration into its causes and effects, and many commentators have pointed to economic forces, the economics profession has been relatively slow to respond. Indeed, rigorous quantitative economic analysis of social unrest is scarce, and until recently evidence has been limited to isolated cases. But a new panel of IMF staff is trying to fill this gap by analyzing the risks and economic costs of social unrest.
measure anxiety
A key challenge in studying social unrest, defined as protests, riots, and other forms of civil unrest and conflict, is identifying when such events occur. Sources of information are available, but many are sporadic or inconsistent in their reporting.
To address these shortcomings, we constructed a “reported social anxiety index” based on news coverage of social anxiety (Barrett and Others 2020). It provides a consistent monthly measure of social unrest in 130 countries from 1985 to the present. The spike in the index aligns very closely with narrative descriptions of the disorder in various case studies, suggesting that the index captures real events rather than changes in media sentiment or attention. . Several IMF studies, discussed in more detail in this article, have since used this measure to analyze the causes and consequences of anxiety.
This indicator shows that large-scale social unrest incidents are rare. On average, the probability that a country will experience such an event in a given month is only 1%. However, this risk quadruples her if a country has experienced an incident of social unrest within the past six months, and doubles hers if a neighboring country has.
Recently, the frequency of social unrest incidents has increased, at least prior to COVID-19. In the second half of 2019, the number of such incidents reached the highest level in 30 years due to simultaneous outbreaks of unrest in both South America and the Middle East. Additionally, while a combination of movement restrictions and voluntary abstinence from large gatherings almost completely ended unrest during the first wave of the pandemic, it remains to be seen whether unrest will reignite as restrictions are eased (Figure 1).
economic cause
Although we now have a solid picture of when social anxiety occurs, identifying the underlying factors is a more complex task. Economic factors such as inequality are often blamed, but they are probably only part of the reason. One case in point is that while inequality has risen slowly in recent decades, it has not worsened significantly over the past decade to explain the recent rise in dissatisfaction.
To dig deeper into the causes, IMF economists Sandile Hlatswayo and Chris Redl used machine learning techniques to assess the ability of more than 340 economic and social indicators to predict anxiety (Hlatswayo and Redl paper will be published soon). The central finding is that past turmoil, both within the country and in neighboring countries, is the most important variable in predicting future conflict. This provides about 10 times more information than the most obvious economic or social factors.
Although this may seem a bit surprising at first glance, it is consistent with theoretical models of protest that consider coordination to be a central driver of unrest. The intuition is that large protests are more likely to have an impact than smaller ones. The resulting power relations are therefore highly unpredictable, and protests often escalate when people think others will also join. This idea has a lot in common with bank runs, where people rush to withdraw their deposits when they see others queuing up. As a result, factors that indicate that others are active in protest, such as past protests or protests in culturally similar neighboring countries, may act as moderating signals.
This is not to say that socio-economic factors are irrelevant. Prices, especially food and fuel prices, appear to be particularly important. Digital access and social media penetration have been identified as other factors predicting riots, suggesting that the ability to communicate and coordinate at scale may be essential for protests. Moreover, a history of domestic and neighborhood unrest may not just be a regulatory signal but also reflect long-standing unresolved issues, such as the legacy of institutional racism.
Economic and financial impact
Economic factors play a more important role when it comes to the impact of anxiety.
First and foremost, IMF economist Metzi-Vaskov and colleagues found a strong relationship between insecurity and subsequent economic performance (Hadzi-Vaskov, Pienknagura, and Ricci 2021). On average, major social unrest reduces GDP by 1 percentage point six quarters later (see Figure 2). Insecurity caused by socio-economic factors is associated with sharper GDP contraction than anxiety related to political motivations. However, events caused by a combination of both factors correspond to the sharpest GDP contraction.
Taken at face value, these results could mean one of three things. Anxiety is caused by low growth. Alternatively, both insecurity and low growth are caused by other causes, such as austerity. The first explanation is probably the most plausible. This is because the association between insecurity and growth holds regardless of whether the country was experiencing low growth or fiscal austerity before the insecurity.
The economic cost of anxiety can also be measured by stock market valuations. Compared to macroeconomic indicators such as GDP, this measure can address concerns about the direction of causality. This is because the high frequency of stock market data leaves less time for other slow-moving factors to have an impact.
Stock market valuations also provide valuable insight into future economic prospects, as they capture investors’ expectations about a stock’s future returns. We examine 156 riot events in 72 countries and find that stock market returns decline by an average of 1.4 percentage points after large-scale riot events (Barrett and Others 2021b).
There are further nuances to this finding. In countries with more open and democratic institutions, riots have a negligible effect on stock market returns. However, in countries with more authoritarian regimes, the impact is largely negative. On average, stock market returns fall by 2% within 3 days, and about 4% in the next month. This finding regarding the role of institutions is also reflected in the growth studies mentioned earlier, which find that strengthening the rule of law reduces the negative impact of insecurity on GDP.
Stock market data provides further clues about how the unrest will affect the economic outlook. This is because the trading volume of stocks increases rapidly after unrest occurs. Increased trading volume typically reflects increased uncertainty about the outlook, as more trading occurs when investors disagree about the value of an asset. The evidence therefore points to indirect information channels rather than direct disruptions to economic activity. In other words, in countries with high standards of governance and open institutions, social unrest does not lead to further disagreements and uncertainties about the economic outlook, and this is likely due to the ability to reconcile differing opinions and make compromises. This is thought to reflect the ability to find points. More authoritarian systems may lack this flexibility.
riots and pandemics
It is also timely to note that history is full of examples of infectious diseases that disrupt social order and ultimately cause social unrest, such as Justinian’s plague, the Black Death, and the cholera pandemic of the 1830s. It happened. One possible reason is that infectious disease outbreaks can expose or exacerbate existing fault lines in society, such as inadequate social safety nets or perceptions of government incompetence. It can also lead to widening disparities between different ethnic, religious groups, and economic classes. Consistent with this notion of the social scar effect of epidemics, we find that countries with more frequent and severe epidemics experience more anxiety on average (Barrett and Chen 2021a) .
On the other hand, social scarring in the form of anxiety may not appear immediately. Mitigating factors can be prevalent during and immediately after an outbreak. For example, a disease outbreak could disrupt the transportation needed to organize large protests and discourage crowds from gathering. Additionally, public opinion may favor unity and unity in times of persecution. In some cases, incumbent governments use emergencies to consolidate power and suppress opposition.
The COVID-19 experience is consistent with this historical pattern. The number of large-scale riots around the world has fallen to its lowest level in nearly five years. Statistical analysis confirms a negative relationship between national anxiety and COVID-19-related lockdowns. If a country is on lockdown, the chances of large-scale riots occurring are significantly lower.
There is no denying that COVID-19 has exposed or exacerbated many problems that already exist in our society. If history is a predictor, social fault lines may sow the seeds of instability that may emerge after the pandemic subsides. One thing is certain: economics can play an important role in improving our understanding of when social unrest occurs, why it occurs, and its broader effects.
References:
Barrett, Philippe, Maximiliano Appendino, Kate Nguyen, and Jorge de Leon Miranda. 2020. “Measuring Social Anxiety Using Media Coverage.” IMF Working Paper 20/129, International Monetary Fund, Washington, DC.
Barrett, Philip, and Sophia Chen. 2021a. “Social Impacts of the Pandemic” IMF Working Paper 21/021, International Monetary Fund, Washington, DC.
Barrett, Philippe, Maria Bondar, Sophia Chen, Mari Chivakul, and Deniz Igan. 2021b. “Pricing Protests: Financial Market Reactions to Social Unrest,” IMF Working Paper 21/079, International Monetary Fund, Washington, DC.
Hadji-Baskov, Metodizi, Samuel Piennagra, Luca Ricci. 2021. “Macroeconomic Consequences of Social Unrest” IMF Working Paper 21/135, International Monetary Fund, Washington, DC.
Hlatswayo, Sandile, Chris Redl. Future plans. “Predicting Social Unrest” IMF Working Paper, International Monetary Fund, Washington, DC.
The opinions expressed in articles and other materials are those of the authors. They do not necessarily represent the views of the IMF, its Board of Directors, or its policies.