The Effect of Political Cycle on Unemployment Growth Rate in Selected Developed and Developing Countries

During the last few decades, the study of the effect of non-economic variables in the economy has become a prominent subject matter for the researchers. One of the most important issue in these cases are the effects of elections (as a political phenomenon) on the economic variables, which in the economic literature is referred to as the political cycle. Thus, in this study, by using panel data for 29 selected countries (in two groups including the developed and developing countries) during the period 1994-2011, we attempt to evaluate the effects of political cycles (indicators include: the year of the election, the minority government, coalitions, government ideology) on the unemployment growth rate. To investigate this, generalized least square (GLS) and generalized method of moments (GMM) techniques have been used. Based on the results, candidates of each country irrespective of their ideology (left wing or right wing) try to gain a greater number of people's vote by increasing
job opportunities, reducing unemployment and promoting the business environment. Furthermore, the variables of the minority government and coalitions have significant influence (respectively positive and negative effect) on the growth of unemployment rate in developing countrie (unlike the cases of the developed countries).