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.
Acknowledgment
The first author acknowledges support from the Turkish Academy of Sciences.
Appendix
The effects of polity stability on growth by income and democracy level: OLS estimations.
| All countries | Developing countries | Developed countries | Democratic countries | Autocratic countries | All countries | Developing countries | Developed countries | Democratic countries | Autocratic countries | |
|---|---|---|---|---|---|---|---|---|---|---|
| Lagged dependent variable | 0.127* | 0.0818 | 0.293*** | 0.129* | 0.0696 | 0.215*** | 0.209*** | 0.126 | 0.189*** | 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 formation | 0.925* | 0.651 | 0.826 | 0.412 | 0.857 | 0.661 | 0.549 | 0.786 | 0.206 | 0.582 |
| (1.832) | (1.225) | (0.748) | (0.519) | (1.208) | (1.426) | (1.110) | (0.760) | (0.264) | (0.968) | |
| Human capital index | 0.457 | 0.229 | −0.00764 | 0.501 | 1.062 | 0.312 | −0.216 | 1.301 | 0.331 | 0.466 |
| (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 shares | 0.647 | 0.278 | 0.680 | 0.700 | 0.263 | 1.296*** | 1.256** | 0.944 | 1.074** | 1.404* |
| (1.012) | (0.360) | (1.237) | (1.389) | (0.238) | (2.878) | (2.270) | (1.523) | (2.325) | (1.778) | |
| Durability | 0.642** | 1.006*** | 0.478 | 0.482 | 1.549*** | |||||
| (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) | ||||||
| Observations | 849 | 631 | 218 | 516 | 333 | 742 | 537 | 205 | 446 | 296 |
| R-squared | 0.218 | 0.215 | 0.498 | 0.214 | 0.267 | 0.283 | 0.262 | 0.487 | 0.245 | 0.340 |
Robust t-statistics in parentheses.
***p<0.01, **p<0.05, *p<0.1.
The effects of polity stability on investment by income level: OLS estimations.
| Gross fixed capital formation | Public inv. | Private inv. | Gross fixed capital formation | Public inv. | Private inv. | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| All countries | Developing countries | Developed countries | Developing countries | Developing countries | All countries | Developing countries | Developed countries | Developing countries | Developing countries | |
| Lagged dependent variable | 0.653*** | 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 formation | 0.112*** | 0.118*** | −0.0818 | 0.243*** | 0.152** | 0.0677** | 0.0750** | −0.0743 | 0.196** | 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 | −0.0159 | 0.0565 | −0.0391 | 0.186 | 0.0405 | −0.00165 | 0.0876 | 0.00457 | 0.258 |
| (−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*** | −0.152 | 0.201 | −0.267* | −0.152** | −0.235** | −0.176 | 0.252 | −0.186 |
| (−3.611) | (−3.012) | (−1.096) | (0.789) | (−1.699) | (−2.371) | (−2.448) | (−1.276) | (0.894) | (−1.123) | |
| Trade shares | 0.0832*** | 0.0899*** | 0.0512 | −0.0187 | 0.0144 | 0.0735*** | 0.0810** | 0.0500 | −0.0430 | 0.00599 |
| (3.474) | (2.847) | (1.390) | (−0.223) | (0.253) | (2.782) | (2.315) | (1.230) | (−0.436) | (0.0931) | |
| Durability | 0.0535*** | 0.0751*** | −0.0529 | 0.137*** | −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) | ||||||
| Observations | 778 | 572 | 206 | 335 | 338 | 678 | 485 | 193 | 270 | 274 |
| R-squared | 0.609 | 0.592 | 0.563 | 0.515 | 0.501 | 0.620 | 0.603 | 0.554 | 0.525 | 0.502 |
Robust t-statistics in parentheses.
***p<0.01, **p<0.05, *p<0.1.
The effects of polity stability on investment by democracy level: OLS estimations.
| Gross fixed Capital formation | Public investment | Private 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 variable | 0.598*** | 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 formation | 0.0738 | 0.0989** | 0.0179 | 0.0787** | 0.436** | 0.239** | 0.485** | 0.213* | 0.171 | 0.119 | −0.0148 | 0.0811 |
| (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 index | 0.0297 | 0.0274 | 0.0649 | 0.0360 | −0.310 | 0.204 | −0.256 | 0.178 | 0.0805 | 0.421 | 0.114 | 0.578 |
| (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 | −0.0546 | 0.695* | −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 shares | 0.0634*** | 0.0973 | 0.0565** | 0.0924 | 0.114 | −0.0786 | 0.0550 | −0.00719 | 0.0223 | −0.0651 | 0.00240 | −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) | |
| Durability | 0.0306 | 0.106*** | 0.0987 | 0.173** | 0.0361 | −0.0186 | ||||||
| (1.609) | (3.112) | (1.386) | (2.538) | (0.813) | (−0.205) | |||||||
| Fragility | −0.0492* | −0.12*** | −0.24*** | 0.0401 | 0.0418 | −0.171* | ||||||
| (−1.839) | (−3.209) | (−3.247) | (0.322) | (0.658) | (−1.878) | |||||||
| Observations | 488 | 290 | 420 | 258 | 194 | 153 | 149 | 131 | 198 | 152 | 154 | 130 |
| R-squared | 0.614 | 0.617 | 0.637 | 0.624 | 0.444 | 0.588 | 0.519 | 0.572 | 0.534 | 0.505 | 0.553 | 0.515 |
Robust t-statistics in parentheses.
***p<0.01, **p<0.05, *p<0.1.
The effects of polity stability on growth by income and democracy level: fixed effects estimations.
| All countries | Developing countries | Developed countries | Democratic countries | Autocratic countries | All countries | Developing countries | Developed countries | Democratic countries | Autocratic countries | |
|---|---|---|---|---|---|---|---|---|---|---|
| Lagged dependent variable | −0.0303 | −0.0598 | 0.0341 | 0.0128 | −0.129 | 0.00227 | 0.00388 | −0.159 | 0.000705 | −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 formation | 0.685 | 1.174 | –8.224*** | 0.424 | 2.087 | −0.0134 | 0.276 | –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 shares | 1.431* | 2.341** | −0.0476 | 1.692* | 2.169 | 1.552** | 2.561** | 0.0625 | 1.411* | 4.781** |
| (1.912) | (2.455) | (−0.190) | (1.749) | (0.907) | (1.984) | (2.198) | (0.264) | (1.683) | (2.444) | |
| Durability | 1.326*** | 1.438*** | 0.272 | 0.931* | 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) | ||||||
| Observations | 849 | 631 | 218 | 516 | 333 | 742 | 537 | 205 | 446 | 296 |
| R-squared | 0.289 | 0.285 | 0.552 | 0.386 | 0.266 | 0.305 | 0.310 | 0.493 | 0.370 | 0.318 |
| Number of country | 122 | 94 | 28 | 98 | 80 | 122 | 93 | 29 | 98 | 76 |
Robust t-statistics in parentheses.
***p<0.01, **p<0.05, *p<0.1.
The effects of polity stability on investment by income level: fixed effects estimations.
| Gross fixed Capital formation | Public inv. | Private inv. | Gross fixed Capital formation | Public inv. | Private inv. | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| All countries | Developing countries | Developed countries | Developing countries | Developing countries | All countries | Developing countries | Developed countries | Developing countries | Developing countries | |
| Lagged dependent variable | 0.360*** | 0.341*** | 0.278*** | 0.159** | 0.125 | 0.307*** | 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* | −0.135 | 0.438*** | 0.694** | −0.512* | 0.0377 | 0.0567 | 0.530*** | 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 formation | 0.0685 | 0.175 | −0.813*** | −0.323 | 0.564 | −0.0734 | 0.00646 | −0.855*** | −0.415 | 0.345 |
| (0.417) | (0.972) | (−3.381) | (−0.627) | (1.644) | (−0.432) | (0.0337) | (−3.019) | (−0.821) | (0.833) | |
| Human capital index | 0.146 | −0.0526 | 0.169 | −1.053 | 0.141 | 0.160 | −0.100 | 0.253 | −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 | −0.0145 | 0.321 | −0.277** | 1.218 | 0.269 | −0.0682 | −0.0523 | 0.0128 | 0.355 | −0.419 |
| (−0.0944) | (1.309) | (−2.233) | (1.567) | (0.462) | (−0.427) | (−0.212) | (0.0524) | (0.447) | (−0.650) | |
| Trade shares | 0.133** | 0.211** | 0.0344 | 0.435** | 0.282* | 0.125** | 0.168** | 0.0449** | 0.334 | 0.285* |
| (2.279) | (2.611) | (1.544) | (2.583) | (1.798) | (2.272) | (2.108) | (2.572) | (1.598) | (1.804) | |
| Durability | 0.0987*** | 0.112*** | −0.0244 | 0.121* | 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) | ||||||
| Observations | 778 | 572 | 206 | 335 | 338 | 678 | 485 | 193 | 270 | 274 |
| R-squared | 0.241 | 0.268 | 0.413 | 0.274 | 0.112 | 0.210 | 0.224 | 0.367 | 0.254 | 0.069 |
| Number of country | 121 | 93 | 28 | 74 | 74 | 123 | 93 | 30 | 70 | 71 |
Robust t-statistics in parentheses.
***p<0.01, **p<0.05, *p<0.1.
The effects of polity stability on investment by democracy level: fixed effects estimations.
| Gross fixed capital formation | Public investment | Private 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 variable | 0.314*** | 0.262*** | 0.263*** | 0.151* | 0.178* | 0.240*** | 0.149 | 0.153* | 0.280*** | −0.0405 | 0.249* | −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 | −0.0677 | 0.101 | 0.00629 | 0.170 | 1.517*** | 0.265 | 1.038* | 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 | −0.173 | 0.164 | −0.187 | 0.0657 | −0.847 | 0.613 | −0.753 | 0.305 | 0.425 | 0.961* | 0.306 | 0.696 |
| (−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 index | 0.105 | 0.136 | 0.316 | 0.0623 | −1.428 | −1.402 | −0.546 | −1.755 | 0.0492 | 1.354 | −0.733 | 0.601 |
| (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 | −0.115 | 0.145 | −0.254 | 1.762 | −0.0620 | 1.258 | 0.463 | −0.0721 | 0.0309 | −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 shares | 0.0846** | 0.498*** | 0.0733** | 0.429*** | 0.503** | −0.0624 | 0.309 | 0.124 | 0.124 | 0.892** | 0.0766 | 0.961** |
| (2.308) | (3.409) | (2.076) | (3.799) | (2.143) | (−0.186) | (1.134) | (0.292) | (1.277) | (2.666) | (1.004) | (2.624) | |
| Durability | 0.119*** | 0.105* | 0.182** | 0.132 | 0.242** | 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) | |||||||
| Observations | 488 | 290 | 420 | 258 | 194 | 153 | 149 | 131 | 198 | 152 | 154 | 130 |
| R-squared | 0.242 | 0.303 | 0.179 | 0.273 | 0.309 | 0.376 | 0.373 | 0.318 | 0.326 | 0.125 | 0.250 | 0.124 |
| Number of country | 98 | 72 | 99 | 71 | 60 | 46 | 57 | 43 | 59 | 46 | 56 | 44 |
Robust t-statistics in parentheses.
***p<0.01, **p<0.05, *p<0.1.
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Articles in the same Issue
- Editorial
- 2nd Walter Isard Annual Award for the Best Article in Peace Economics Peace Science and Public Policy
- Research Articles
- Armed Conflict and Schooling in Rwanda: Digging Deeper
- Sounding the Alarm: The Political Economy of Whistleblowing in the US Security State
- Military Expenditures and Income Inequality among a Panel of OECD Countries in the Post-Cold War Era, 1990–2007
- Polity Stability, Economic Growth, and Investment: A Dynamic Panel Analysis
- Government Debt and Economic Growth. A Threshold Analysis for Greece
Articles in the same Issue
- Editorial
- 2nd Walter Isard Annual Award for the Best Article in Peace Economics Peace Science and Public Policy
- Research Articles
- Armed Conflict and Schooling in Rwanda: Digging Deeper
- Sounding the Alarm: The Political Economy of Whistleblowing in the US Security State
- Military Expenditures and Income Inequality among a Panel of OECD Countries in the Post-Cold War Era, 1990–2007
- Polity Stability, Economic Growth, and Investment: A Dynamic Panel Analysis
- Government Debt and Economic Growth. A Threshold Analysis for Greece