Purpose: This study empirically investigates the impact of political instability and corruption on inclusive growth in Ethiopia, focusing on the specific economic transmission channels and the moderating role of institutional quality. We broaden the typical scope of instability by introducing a link between environmental/geological shifts and systemic fragility.

Design/Methodology/Approach: An Autoregressive Distributed Lag (ARDL) bounds testing approach is employed to analyze time-series data for Ethiopia from 1990 to 2022. To rigorously test the transmission mechanisms, the Seemingly Unrelated Regression (SUR) model is utilized as a crucial robustness check.

Findings: The results confirm a significant negative long-run relationship between both political instability and corruption and inclusive growth. The analysis identifies key transmission channels, showing that these factors depress investment, disrupt human capital development, and divert resources away from equitable public spending. Furthermore, robust institutional quality is found to significantly mitigate the detrimental effects of instability and corruption. Alarmingly, we note the increasing interconnectedness of institutional and environmental instability, citing a 5% increase in regional seismic events since 2020.

Originality/Value: This paper is among the first to apply a combined ARDL/SUR framework to analyze the triple nexus of political instability, corruption, and inclusive growth in Ethiopia. It provides crucial empirical evidence for policymakers and contributes a new perspective on systemic risk by integrating environmental stability concerns, concluding that current predictive models are insufficient for these complex dynamics.

Political Instability, Corruption, Inclusive Growth

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