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Polity Stability, Economic Growth, and Investment: A Dynamic Panel Analysis

  • Halit Yanıkkaya ORCID logo EMAIL logo and Taner Turan
Published/Copyright: October 10, 2018

Abstract

In this paper, we empirically examine the effect of polity stability on economic growth and investment by using the dynamic panel estimation techniques for more than 100 countries over the period 1960–2009. Our initial results imply that democracy reduces growth in both developed and developing countries. However, there is no evidence for the existence of a significant effect of the democracy level on the overall, public and private investment. Our results also suggest that the growth and investment effects of polity stability proxied by regime durability and polity fragility measures greatly differ in developing and developed countries. Our empirical results indicate that polity stability promotes growth only in developing countries. It seems that regime durability and polity fragility affect economic growth mainly through investment. We also make a distinction between public and private investment when examining the effects of polity stability. It seems that the durability and fragility matter for private investment. Therefore, developing countries ought to put solid efforts to lessen polity instability to promote economic growth.

JEL Classification: O16; O43; P47

Acknowledgment

The first author acknowledges support from the Turkish Academy of Sciences.

Appendix

Table 9:

The effects of polity stability on growth by income and democracy level: OLS estimations.

All countriesDeveloping countriesDeveloped countriesDemocratic countriesAutocratic countriesAll countriesDeveloping countriesDeveloped countriesDemocratic countriesAutocratic countries
Lagged dependent variable0.127*0.08180.293***0.129*0.06960.215***0.209***0.1260.189***0.201***
(1.808)(1.071)(5.267)(1.915)(0.706)(5.141)(4.456)(1.128)(3.273)(3.811)
Initial GDP per capita−3.677***−2.971***−5.989**−3.055***−3.649***−3.296***−2.836***−8.156***−2.674***−3.055***
(−5.135)(−3.649)(−2.310)(−3.660)(−3.427)(−4.751)(−3.364)(−3.146)(−3.084)(−3.162)
Gross fixed capital formation0.925*0.6510.8260.4120.8570.6610.5490.7860.2060.582
(1.832)(1.225)(0.748)(0.519)(1.208)(1.426)(1.110)(0.760)(0.264)(0.968)
Human capital index0.4570.229−0.007640.5011.0620.312−0.2161.3010.3310.466
(0.538)(0.216)(−0.00988)(0.516)(0.746)(0.394)(−0.212)(1.365)(0.356)(0.350)
Fertility rates−6.916***−7.645***−2.053−5.756***−9.674***−6.880***−7.979***−5.053***−6.043***−9.181***
(−6.202)(−5.271)(−1.187)(−4.776)(−4.692)(−6.489)(−5.427)(−3.002)(−4.688)(−4.582)
Trade shares0.6470.2780.6800.7000.2631.296***1.256**0.9441.074**1.404*
(1.012)(0.360)(1.237)(1.389)(0.238)(2.878)(2.270)(1.523)(2.325)(1.778)
Durability0.642**1.006***0.4780.4821.549***
(2.339)(3.241)(1.081)(1.506)(3.402)
Fragility−0.877***−1.039***−0.605−0.672*−1.447***
(−2.875)(−3.318)(−1.051)(−1.831)(−3.132)
Observations849631218516333742537205446296
R-squared0.2180.2150.4980.2140.2670.2830.2620.4870.2450.340
  1. Robust t-statistics in parentheses.

  2. ***p<0.01, **p<0.05, *p<0.1.

Table 10:

The effects of polity stability on investment by income level: OLS estimations.

Gross fixed capital formationPublic inv.Private inv.Gross fixed capital formationPublic inv.Private inv.
All countriesDeveloping countriesDeveloped countriesDeveloping countriesDeveloping countriesAll countriesDeveloping countriesDeveloped countriesDeveloping countriesDeveloping countries
Lagged dependent variable0.653***0.644***0.641***0.605***0.663***0.668***0.671***0.631***0.635***0.653***
(18.94)(15.81)(8.216)(10.44)(13.42)(17.02)(14.46)(10.97)(9.318)(11.86)
Initial GDP per capita−0.175***−0.166***0.0436−0.235*−0.218**−0.110**−0.0969*−0.144−0.189−0.122
(−3.748)(−3.168)(0.240)(−1.975)(−2.076)(−2.536)(−1.739)(−1.301)(−1.225)(−0.939)
Gross fixed capital formation0.112***0.118***−0.08180.243***0.152**0.0677**0.0750**−0.07430.196**0.0902
(3.367)(3.387)(−1.262)(3.064)(2.398)(2.236)(2.364)(−0.899)(2.154)(1.337)
Human capital index−0.00625−0.01590.0565−0.03910.1860.0405−0.001650.08760.004570.258
(−0.112)(−0.217)(0.413)(−0.231)(1.232)(0.676)(−0.0207)(0.921)(0.0232)(1.456)
Fertility rates−0.221***−0.260***−0.1520.201−0.267*−0.152**−0.235**−0.1760.252−0.186
(−3.611)(−3.012)(−1.096)(0.789)(−1.699)(−2.371)(−2.448)(−1.276)(0.894)(−1.123)
Trade shares0.0832***0.0899***0.0512−0.01870.01440.0735***0.0810**0.0500−0.04300.00599
(3.474)(2.847)(1.390)(−0.223)(0.253)(2.782)(2.315)(1.230)(−0.436)(0.0931)
Durability0.0535***0.0751***−0.05290.137***−0.0256
(3.433)(3.998)(−1.441)(3.126)(−0.720)
Fragility−0.070***−0.0873***0.0272−0.104**−0.0584
(−3.324)(−3.726)(0.559)(−2.025)(−1.073)
Observations778572206335338678485193270274
R-squared0.6090.5920.5630.5150.5010.6200.6030.5540.5250.502
  1. Robust t-statistics in parentheses.

  2. ***p<0.01, **p<0.05, *p<0.1.

Table 11:

The effects of polity stability on investment by democracy level: OLS estimations.

Gross fixed Capital formationPublic investmentPrivate investment
Dem. count.Autoc. coun.Dem. coun.Autoc. coun.Dem. coun.Autoc. coun.Dem. coun.Autoc. coun.Dem. coun.Autoc. coun.Dem. coun.Autoc. coun.
Lagged dependent variable0.598***0.692***0.644***0.677***0.619***0.603***0.682***0.601***0.531***0.758***0.550***0.726***
(16.07)(13.35)(13.77)(11.59)(10.82)(6.005)(11.14)(5.437)(10.37)(10.57)(9.309)(10.38)
Initial GDP per capita−0.129**−0.184**−0.0346−0.146**−0.197−0.550**−0.198−0.475*−0.298*−0.162−0.0921−0.0996
(−2.502)(−2.557)(−0.687)(−2.354)(−1.131)(−2.622)(−1.001)(−1.897)(−1.883)(−0.729)(−0.531)(−0.434)
Gross fixed capital formation0.07380.0989**0.01790.0787**0.436**0.239**0.485**0.213*0.1710.119−0.01480.0811
(1.405)(2.062)(0.354)(2.191)(2.406)(2.414)(2.418)(1.902)(1.008)(1.486)(−0.0771)(1.396)
Human capital index0.02970.02740.06490.0360−0.3100.204−0.2560.1780.08050.4210.1140.578
(0.554)(0.214)(1.256)(0.263)(−1.392)(0.905)(−1.035)(0.600)(0.521)(1.144)(0.647)(1.659)
Fertility rates−0.194***−0.296**−0.0743−0.36***0.403−0.05460.695*−0.241−0.376**0.0159−0.402*0.0975
(−2.669)(−2.594)(−0.929)(−2.945)(1.235)(−0.170)(1.885)(−0.851)(−2.095)(0.0417)(−1.831)(0.247)
Trade shares0.0634***0.09730.0565**0.09240.114−0.07860.0550−0.007190.0223−0.06510.00240−0.147
(2.889)(1.567)(2.519)(1.554)(1.071)(−0.530)(0.500)(−0.0419)(0.402)(−0.301)(0.0442)(−0.746)
Durability0.03060.106***0.09870.173**0.0361−0.0186
(1.609)(3.112)(1.386)(2.538)(0.813)(−0.205)
Fragility−0.0492*−0.12***−0.24***0.04010.0418−0.171*
(−1.839)(−3.209)(−3.247)(0.322)(0.658)(−1.878)
Observations488290420258194153149131198152154130
R-squared0.6140.6170.6370.6240.4440.5880.5190.5720.5340.5050.5530.515
  1. Robust t-statistics in parentheses.

  2. ***p<0.01, **p<0.05, *p<0.1.

Table 12:

The effects of polity stability on growth by income and democracy level: fixed effects estimations.

All countriesDeveloping countriesDeveloped countriesDemocratic countriesAutocratic countriesAll countriesDeveloping countriesDeveloped countriesDemocratic countriesAutocratic countries
Lagged dependent variable−0.0303−0.05980.03410.0128−0.1290.002270.00388−0.1590.000705−0.0666
(−0.542)(−1.068)(0.448)(0.331)(−0.828)(0.0551)(0.0882)(−1.108)(0.0142)(−0.930)
Initial GDP per capita–10.14***–9.344***–6.590**–11.28***–9.345**–8.162***–8.215***–7.822***–11.58***–5.584
(−4.525)(−3.785)(−2.492)(−5.003)(−2.235)(−3.834)(−3.399)(−2.852)(−4.297)(−1.627)
Gross fixed capital formation0.6851.174–8.224***0.4242.087−0.01340.276–8.133**2.445−2.288
(0.387)(0.627)(−2.943)(0.202)(0.597)(−0.00772)(0.143)(−2.274)(0.958)(−0.694)
Human capital index–5.831**–6.777**–3.289–5.664**−5.151−7.074***−6.966*−4.254−5.862**−3.675
(−2.374)(−2.058)(−1.412)(−2.517)(−0.665)(−2.944)(−1.943)(−1.638)(−2.441)(−0.456)
Fertility rates−12.18***−10.14***−10.32**−12.37***−13.53**−11.64***−12.81***−9.943***−11.05***−12.87**
(−5.147)(−3.448)(−2.354)(−5.491)(−2.171)(−5.042)(−4.175)(−3.088)(−4.482)(−2.160)
Trade shares1.431*2.341**−0.04761.692*2.1691.552**2.561**0.06251.411*4.781**
(1.912)(2.455)(−0.190)(1.749)(0.907)(1.984)(2.198)(0.264)(1.683)(2.444)
Durability1.326***1.438***0.2720.931*1.959**
(3.415)(3.484)(0.360)(1.874)(2.438)
Fragility−1.300***−1.413***0.142−0.657*−1.897***
(−4.470)(−4.537)(0.195)(−1.811)(−3.746)
Observations849631218516333742537205446296
R-squared0.2890.2850.5520.3860.2660.3050.3100.4930.3700.318
Number of country1229428988012293299876
  1. Robust t-statistics in parentheses.

  2. ***p<0.01, **p<0.05, *p<0.1.

Table 13:

The effects of polity stability on investment by income level: fixed effects estimations.

Gross fixed Capital formationPublic inv.Private inv.Gross fixed Capital formationPublic inv.Private inv.
All countriesDeveloping countriesDeveloped countriesDeveloping countriesDeveloping countriesAll countriesDeveloping countriesDeveloped countriesDeveloping countriesDeveloping countries
Lagged dependent variable0.360***0.341***0.278***0.159**0.1250.307***0.300***0.264***0.111*0.0414
(6.071)(5.201)(6.169)(2.422)(1.078)(5.024)(4.250)(5.209)(1.756)(0.320)
Initial GDP per capita−0.169*−0.1350.438***0.694**−0.512*0.03770.05670.530***0.524*−0.00753
(−1.768)(−1.059)(4.188)(2.433)(−1.740)(0.378)(0.435)(3.156)(1.830)(−0.0264)
Gross fixed capital formation0.06850.175−0.813***−0.3230.564−0.07340.00646−0.855***−0.4150.345
(0.417)(0.972)(−3.381)(−0.627)(1.644)(−0.432)(0.0337)(−3.019)(−0.821)(0.833)
Human capital index0.146−0.05260.169−1.0530.1410.160−0.1000.253−1.026−0.481
(0.906)(−0.214)(0.383)(−1.390)(0.252)(1.069)(−0.395)(0.800)(−1.455)(−0.871)
Fertility rates−0.01450.321−0.277**1.2180.269−0.0682−0.05230.01280.355−0.419
(−0.0944)(1.309)(−2.233)(1.567)(0.462)(−0.427)(−0.212)(0.0524)(0.447)(−0.650)
Trade shares0.133**0.211**0.03440.435**0.282*0.125**0.168**0.0449**0.3340.285*
(2.279)(2.611)(1.544)(2.583)(1.798)(2.272)(2.108)(2.572)(1.598)(1.804)
Durability0.0987***0.112***−0.02440.121*0.136
(3.620)(3.755)(−0.247)(1.865)(1.559)
Fragility−0.079***−0.0885***0.0103−0.0980−0.0808
(−3.829)(−4.109)(0.169)(−1.660)(−1.452)
Observations778572206335338678485193270274
R-squared0.2410.2680.4130.2740.1120.2100.2240.3670.2540.069
Number of country1219328747412393307071
  1. Robust t-statistics in parentheses.

  2. ***p<0.01, **p<0.05, *p<0.1.

Table 14:

The effects of polity stability on investment by democracy level: fixed effects estimations.

Gross fixed capital formationPublic investmentPrivate investment
Dem. count.Autoc. coun.Dem. coun.Autoc. coun.Dem. coun.Autoc. coun.Dem. coun.Autoc. coun.Dem. coun.Autoc. coun.Dem. coun.Autoc. coun.
Lagged dependent variable0.314***0.262***0.263***0.151*0.178*0.240***0.1490.153*0.280***−0.04050.249*−0.141
(4.798)(3.879)(3.781)(1.883)(1.911)(3.064)(1.575)(2.003)(3.767)(−0.156)(1.794)(−0.579)
Initial GDP per capita−0.06770.1010.006290.1701.517***0.2651.038*0.270−1.39***−0.0435−0.955**0.269
(−0.466)(0.654)(0.0407)(1.016)(3.380)(0.565)(1.725)(0.576)(−3.859)(−0.108)(−2.136)(0.702)
Gross fixed capital formation−0.1730.164−0.1870.0657−0.8470.613−0.7530.3050.4250.961*0.3060.696
(−1.076)(0.890)(−0.971)(0.290)(−1.572)(0.812)(−1.226)(0.406)(0.651)(1.773)(0.382)(1.008)
Human capital index0.1050.1360.3160.0623−1.428−1.402−0.546−1.7550.04921.354−0.7330.601
(0.594)(0.358)(1.551)(0.129)(−1.482)(−1.128)(−0.516)(−1.225)(0.0664)(1.252)(−0.871)(0.433)
Fertility rates−0.272**0.559−0.1150.145−0.2541.762−0.06201.2580.463−0.07210.0309−1.174
(−1.996)(1.233)(−0.617)(0.295)(−0.236)(1.422)(−0.0529)(1.009)(0.551)(−0.0766)(0.0383)(−0.924)
Trade shares0.0846**0.498***0.0733**0.429***0.503**−0.06240.3090.1240.1240.892**0.07660.961**
(2.308)(3.409)(2.076)(3.799)(2.143)(−0.186)(1.134)(0.292)(1.277)(2.666)(1.004)(2.624)
Durability0.119***0.105*0.182**0.1320.242**0.0901
(3.089)(1.977)(2.131)(1.309)(2.294)(0.579)
Fragility−0.061**−0.099**−0.23***0.0203−0.0160−0.175
(−2.185)(−2.420)(−3.242)(0.191)(−0.250)(−1.638)
Observations488290420258194153149131198152154130
R-squared0.2420.3030.1790.2730.3090.3760.3730.3180.3260.1250.2500.124
Number of country987299716046574359465644
  1. Robust t-statistics in parentheses.

  2. ***p<0.01, **p<0.05, *p<0.1.

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Published Online: 2018-10-10

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