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

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.

Forest frontiers out of control: The long-term effects of discourses, policies, and markets on conservation and development of the Brazilian Amazon

“…The literature also suggests that macroeconomic conditions such as commodity prices and exchange rates have a major influence on land-based investments since investors and farmers make decisions based on profit expectations (Ellis, 2003 ; Williamson 2004 ). Another common argument is that particularly economic stability favors long-term investments in economically competitive sectors, including agriculture (Yanıkkaya and Taner 2019 ), and, in contrast, times of crises hamper economic investments, which may reduce pressures on ecosystems, but negatively affects well-being (Ötker and Podpiera 2013 ). In addition, it is hypothesized that the periods of economic growth accompanies accelerated environmental destruction (Crespo Cuaresma et al 2017 ).…”