Testing the 'Policy by Political Setting' Effect: Evidence from Cross-Country Time Series Data

21 Pages Posted: 25 Jan 2008

See all articles by Johannes W. Fedderke

Johannes W. Fedderke

University of the Witwatersrand - School of Economics and Business Sciences; University of Cape Town

Arin Dutta

Futures Group

Date Written: September 2004

Abstract

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

Fedderke, Johannes and Dutta, Arin, Testing the 'Policy by Political Setting' Effect: Evidence from Cross-Country Time Series Data (September 2004). Available at SSRN: https://ssrn.com/abstract=1086523 or http://dx.doi.org/10.2139/ssrn.1086523

Johannes Fedderke

University of the Witwatersrand - School of Economics and Business Sciences ( email )

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University of Cape Town ( email )

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Arin Dutta (Contact Author)

Futures Group ( email )

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