Testing the 'Policy by Political Setting' Effect: Evidence from Cross-Country Time Series Data
21 Pages Posted: 25 Jan 2008
Date Written: September 2004
This paper extends the debate over the effect of institutions on GDP and growth in GDP by arguing that levels of institutional indicators have a `double-whammy' effect by modifying the effects of policy on GDP and growth in GDP and affecting the levels of policy enacted themselves. We test this idea of policy by political setting with a cross-country dataset for the period 1971-2001, using a Pooled Mean Group estimation technique. Stratifying the country dataset by the Freedom House scores on political rights and civil liberties, we test for these effects. For the dependent variable of GDP and growth rate of GDP, we find significant indirect effects of the institutional variables as well as confirmatory positive, independent effects for policy variables.
Keywords: Governance, Institutions, Economic Growth, Macroeconomic Policies
JEL Classification: O10, D99
Suggested Citation: Suggested Citation