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Political Institutions, Capital Flows, and Developing Country Growth: An Empirical Investigation
Author(s) -
Oliva MariaAngels,
RiveraBatiz Luis A.
Publication year - 2002
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/1467-9361.00152
Subject(s) - economics , foreign direct investment , per capita , rule of law , democracy , growth rate , capital (architecture) , real gross domestic product , gross domestic product , monetary economics , developing country , investment (military) , international economics , macroeconomics , politics , demographic economics , economic growth , population , demography , geometry , mathematics , archaeology , sociology , political science , law , history
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.