Political Versus Economic Institutions in the Growth Process

36 Pages Posted: 12 May 2011

See all articles by Emmanuel Flachaire

Emmanuel Flachaire

Aix-Marseille University

C. Garcia-Peñalosa

National Center for Scientific Research (CNRS) - GREQAM; CESifo (Center for Economic Studies and Ifo Institute)

Maty Konte

UNU-MERIT

Date Written: April 29, 2011

Abstract

After a decade of research on the relationship between institutions and growth, scholars in this field seem to be divided. Economic institutions perform well in growth regressions and a body of literature argues that this supports the key importance of institutions for development. Other authors maintain that the type of constraints that the recent theoretical literature describes are the more stable political institutions, and these have been found to play no role in empirical growth analyses. In this paper we re-examine the role that institutions play in the growth process using cross-section and panel data for both developed and developing economies over the period 1970-2000. Our results indicate that the data is best described by an econometric model with two growth regimes. Political institutions are the key determinant of which growth regime an economy belongs to, while economic institutions have a direct impact on growth rates within each regime. These findings support the hierarchy of institutions hypothesis, whereby political institutions set the stage in which economic institutions and policies operate.

Keywords: growth, institutions, cross-country regressions, mixture regressions

JEL Classification: O430, O470

Suggested Citation

Flachaire, Emmanuel and Garcia-Penalosa, Cecilia and Konte, Maty, Political Versus Economic Institutions in the Growth Process (April 29, 2011). CESifo Working Paper Series No. 3432, Available at SSRN: https://ssrn.com/abstract=1831162

Emmanuel Flachaire

Aix-Marseille University ( email )

3 Avenue Robert Schuman,
France

Cecilia Garcia-Penalosa (Contact Author)

National Center for Scientific Research (CNRS) - GREQAM ( email )

Centre de la Vieille Charité
2, rue de la Charité
Marseille, 13002
France
+33 491 140746 (Phone)
+33 491 900227 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Maty Konte

UNU-MERIT ( email )

Keizer Karelplein 19
Maastricht, 6211TC
Netherlands

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