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Political Institutions, Capital Flows, and Developing Country Growth: An Empirical Investigation

Political Institutions, Capital Flows, and Developing Country Growth: An Empirical Investigation The paper examines the real per‐capita growth effects of the quality of democracy, the rule of law, and capital flows in developing countries. The direct growth effects of democracy are positive and often statistically significant. Moreover, the estimates from a three‐stage least‐squares regression offer evidence that democracy has indirect growth effects that work by encouraging schooling and that the rule of law influences growth indirectly by encouraging foreign direct investment. A higher FDI to GDP ratio is associated with a faster growth rate. The estimated growth effect of the FDI to GDP ratio is several times higher than the estimated growth effect of the domestic investment to GDP ratio. By contrast, this study does not find a clear asso‐ciation between other types of capital flows and growth. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Development Economics Wiley

Political Institutions, Capital Flows, and Developing Country Growth: An Empirical Investigation

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References (27)

Publisher
Wiley
Copyright
Copyright © 2002 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1363-6669
eISSN
1467-9361
DOI
10.1111/1467-9361.00152
Publisher site
See Article on Publisher Site

Abstract

The paper examines the real per‐capita growth effects of the quality of democracy, the rule of law, and capital flows in developing countries. The direct growth effects of democracy are positive and often statistically significant. Moreover, the estimates from a three‐stage least‐squares regression offer evidence that democracy has indirect growth effects that work by encouraging schooling and that the rule of law influences growth indirectly by encouraging foreign direct investment. A higher FDI to GDP ratio is associated with a faster growth rate. The estimated growth effect of the FDI to GDP ratio is several times higher than the estimated growth effect of the domestic investment to GDP ratio. By contrast, this study does not find a clear asso‐ciation between other types of capital flows and growth.

Journal

Review of Development EconomicsWiley

Published: Jun 1, 2002

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