Political stability is one of the fundamental determinants in supporting the economic performance of a country. In the framework of political economy, institutional stability and clear direction in public policy have a significant impact on market expectations and investment behavior, both domestic and foreign. Political uncertainty, such as inter-institutional conflicts, tensions before elections, or inconsistent regulations tends to increase systemic risks that negatively affect the business climate and economic growth prospects.
Fiscal and monetary policies formulated within the political system cannot be separated from the dynamics of political actors’ interests. In some cases, populist policies with short-term orientations, such as increased government spending without adequate productivity support or price interventions not based on market principles, actually create distortions in the economic mechanism. Therefore, the effectiveness of economic policies heavily depends on the quality of governance and the institutional capacity of state institutions, especially in terms of oversight and policy formulation based on data and empirical evidence.
Furthermore, the political dimension also plays a central role in shaping the direction of international economic relations. Geopolitical tensions or shifts in foreign policy can directly affect trade flows, cross-border investments, and exchange rate stability. Thus, an integrative approach that combines political and economic analysis is necessary to formulate sustainable development policies that are responsive to global dynamics. Empirical findings suggest that countries with democratic political systems and strong institutions tend to have higher economic resilience when facing external pressures and global crises.
