The Impact of Political Instability on Madagascar Vanilla Exports

The main purpose of this paper is to investigate how the political instability in 2009 affected the Madagascar vanilla exports. Madagascar vanilla sector has experienced robust growth over the past decade which contributes to both the economy and the job creation, especially in northeast region where Vanilla was planted. However, this growth faced a serious problem after the political instability in 2009. This paper shows that the suspension of Africa Growth and Opportunity Act (AGOA), due to the political instability, had a large negative impact on vanilla exports. To estimate its impacts on vanilla exports, the international trade data permit us to isolate those impacts from various factors between Madagascar and other vanilla exporting countries by using the different-in-different (DID) technique. We take the sample of 2007 to 2011 by using Tobit model with random effects in addition to OLS with fixed effect in order to observe how far political instability hampers the vanilla exports in Madagascar. Through analysis, we find that the political instability has a negative effect on economic growth in terms of Madagascar vanilla exports.


Introduction
In today's world, political instability remains the most questionable issues and hard to tackle. Too many countries have faced this turmoil especially in Sub-Saharan Africa (SSA). Madagascar, which is located in the Southern Indian Ocean, has experienced cycles of political instability over the last five decades. However, it is well-known by its nature and among the one enormous potential on cash crop, namely vanilla, coffee, and cloves. And despite its recent progress, tal of Madagascar (Antananarivo). However, there were problems happened between the mayor and the President Marc Ravalomanana in 2008. And different angles of unpopular policies ratified by the president were criticized by Andry Rajoelina. In the same year, the government apparently delayed to pay the funds for various local government infrastructure projects in the capital, and even diverted investment away from the city. And in too many other ways, they refused to facilitate cooperation between the municipal and the central govern-

Political Instability and Economic Growth
Political instability is the qualitative phenomena which are difficult to measure quantitatively and not easily to define.

Definition of Political Instability
Political stability provided a description of a well-functioning government while political instability is the propensity of a government collapse either because of conflicts or rampant competition between various political parties [2]. An early study tells us that there is no general consensus in literature about how to define political instability. Despite that, we can refer to Lipset (1960) [3] who defined political instability as the non-persistence in form of government. It was said that a politically stable country has been a liberal democracy or autocracy for at least 25 years [4]. In addition, according to Alesina and Perotti (1996) [5], political instability is the "propensity to observe the government changes" and the changes can take place within the law or outside, like "Coups d'État" and that differentiates between constitutional and unconstitutional government changes.
In this case, revolutions are a sign of political instability which can be provoked by individuals who lose confidence, are dissatisfied in the political system and demonstrate to show their anger or dissatisfaction.

Determinants of Political Instability 1) Economic Inequality
It is important to state that the power given to the government influences the leaders of some countries to make a change in economic and social policies for their personal interests, not for their nations. Such an anti-social behavior would harm the economic performance hence the birth of economic inequality. With a polarized and inequality distribution of national resources, people will find reasons to pursue their interest outside the normal channels of both political repre-  [7] commented that: "it seems plausible to expect that in societies with high inequality, where the distribution or scope of discontent is presumably widespread, discontent is highly likely to be mobilized somehow, than in societies with low inequality."

2) Income
In reference to Blanco and Grier (2009) [8], they consider that poor economic performance mainly causes political instability and this is down to two reasons.
The first reason is that falling income lowers the opportunity cost of an individual to rise up, revolt or protest. And the second reason is that deprivation is increased by poor economic environment which fuels political crisis especially when the government is found incompetent. In addition, Blomberg and Hess (2002) [9] show empirically that low income growth may affect instability.

3) Inflation
A possible macroeconomic factor which influences the government to be stable or unstable is based on inflation rates in a country. Cukierman and Tabellini (1992) [10] in their study of inflation and political instability, find politically weak governments are highly likely to resort to seigniorage. However, Paldam

Empirical Researches
In this section, we will present previous literature made on relationship between political instability and economic growth which has been discussed by various researchers and is not new at all. The most prominent literatures are reviewed as follows: Political instability can affect economic growth in different number of channels. According to Aisen and Veiga (2013) [14], they find that total factor productivity is the main transmission channel through which political instability has a negative effect on growth. [2] Examine the links between political instability and economic growth, and they test the sample of 113 countries for the pe- where there are high chances of government collapse, growth is considerably lower and vice-versa. Furthermore, the authors do not find any significant change of economic growth when authoritarian regimes are compared to democracies. The analysis of Alesina and Perotti (1996) [5] shows that there are two dimensions of political instability: -Regime-related instability: Coups d'état, governmental crisis, purges, cabinet changes. -Instability induced by civil-society: assassinations, general strikes, guerilla warfare, riots, revolutions, anti-governmental demonstrations.
[15] test the influence of political instability on economic growth for United Kingdom for the period of 1961-1997 by using time-series data. They use OLS regression technique and GARCH and GARCH-M models. Moreover, they construct the political instability index by employing principal component method.
The researchers find that political instability and growth of UK GDP per capita are strongly negatively related to each other. [16] analyze the role of instabilities on Africa's low rates of growth during 1970 to 199, while they use cross-section statistical estimates to test a sample of African and non-African countries. And they also estimate impact of political instability on economic growth. The authors conclude that the political instability lowered the rate of GDP growth more through their effect on total factor productivity growth than by diminishing the rate of investment. [17] examines the interrelationships among democracy, political instability and economic growth. He uses the technique of three-stage least square on the cross country data of ninety-six countries for the time period of 1960-1980 by using simultaneous equation system. The estimation facts point out either there is constitutional government change or regime change, both have the significant reverse effects on growth. However, the growth is affecting regime change negatively and affecting positively the probability of the ruling party staying in power. [18] analyzes the inter-linkages between political crisis and economic growth. He uses the Cobb-Douglas production function and the data of different events of "coups d'état" of the Sub-Saharan African countries for the period of 1960-1986. In his conclusion, the author says that political crisis greatly hampers the economic growth in the Sub-Saharan African countries. So far, he adds that political crisis index is giving much more appropriate results than the coup variables separately. [19] study the connections between political instability and economic growth. They test a big sample of 39 Sub-Saharan African countries. The authors use simultaneous equations model and a dynamic panel estimation method for the estimation of time-series cross-national data for the period of 1975-88. In their conclusion, the negative relationship is identified between political instability and economic growth. [20] present rather amazing findings that political crisis hampers the economic growth significantly by con-

Data Collection
This paper used mainly secondary data which were sourced from National In-

Estimation Method and Model
As we try to identify the impacts of political instability on vanilla exports, we require information from abroad to distinguish the effects of political instability from financial crisis. where:

Research Findings and Interpretation
The main objective of the current study is to test the hypothesis that the political instability affects negatively Madagascar vanilla exports to USA and EU markets. Year = a dummy for a set of years; Vanilla*country*market = represents the fixed effect, and v, x, m, and t indicate respectively a product at the six-digit level, country, market, and time 1 .
The DID estimate is α 1 , and a triple interaction term is incorporated to control the possible impact of AGOA suspension. We also estimated the above model using import value only in the EU market, dropping the triple interaction term. We include the observations with zero import value to estimate the extensive and intensive margins. But, we also need to insert 1 (dollar) for these observations in order to get the logarithm. Tobit model with Random Effect (RE) is applied in addition to OLS with Fixed Effect (FE) to seeing the sensitivity of including these censored observations [26]. And the following Table 1 reports the results of these estimations: In Table 1, Columns 1 and 2 show the effects of the political crisis on vanilla exports to USA and EU markets in 2009, which are negative and significant only in the Tobit model. Columns 3 and 4 summarize the estimated effects in the EU vanilla market in 2009 and 2010 which are negative and significant. For those with statistical significance, estimated impact ranges from 31.1% to 45.3% with larger effect in Tobit model as expected. Point estimates are larger in the models covering only the EU vanilla market. Therefore, when we estimated separately the USA and EU vanilla market, we observed no significant difference impacts on their markets in 2009, rather, it is due to the larger estimated impact in 2010.
To analyze the measurement of the impact of AGOA suspension, DIDID using imports in the USA and EU vanilla markets from six low-income countries is applied in the following form:     than estimate by DIDID, and thus, adverse impact will be overestimated. Finally, we run DID model and found that estimated effect is larger by 4.5% to 12.7% than those in the DIDID model (column 3 and 4).

Conclusions and Policies Recommendations
Although, the vanilla production displayed robust growth in 2003, overcoming the market liberalization in 1990, this sector experienced a critical effect after the domestic political instability in 2009. Our analysis indicates that the political instability has negatively affected the vanilla exports (reduction of Vanilla exports by 31% to 45%). And it is more drastic when the main importers (USA) of Madagascar vanilla have suspended the duty-free access (the AGOA) to the USA vanilla market due to the government instability or political crisis. Furthermore, the estimated results show that suspension of AGOA caused exports to the USA vanilla market to fall by 64% to 78% which reveals that political instability reduces significantly economic growth.
In terms of vanilla production, Madagascar has never been able to industrial- decades. At the absence of the processing industry of its products, therefore, the researcher recommends for stronger policies and regulations in efforts from the competent authority to revive the vanilla sector in order to boost the vanilla exportation not only to USA and EU but also worldwide. Furthermore, the Malagasy government needs to intervene and have bilateral talks with other countries in efforts to lure overseas investors who can input technological and innovation aspects in vanilla production by setting up the factory of transformation of vanilla in Madagascar.