Flachaire Et Al. (2014) - Political Versus Economic Institutions in The Growth Process

Journal of Comparative Economics 42 (2014) 212–229
Contents lists available at SciVerse ScienceDirect
Journal of Comparative Economics

journal homepage: www.elsevier.com/locate/jce
Political versus economic institutions in the growth process

Emmanuel Flachaire, Cecilia García-Peñalosa ⇑, Maty Konte
Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS, GREQAM-EHESS, Centre de la Vieille Charité,
2 rue de la Charité, 13002 Marseille, France
a r t i c l e i n f o a b s t r a c t
Article history: Flachaire, Emmanuel, García-Peñalosa, Cecilia, and Konte, Maty—Political versus eco-
Received 28 June 2012 nomic institutions in the growth process
Revised 30 April 2013
Available online 16 May 2013 After a decade of research on the relationship between institutions and growth, there is no
consensus about the exact way in which these two variables interact. In this paper we
JEL classification: re-examine the role that institutions play in the growth process using data for developed
O43 and developing economies over the period 1975–2005. Our results indicate that the data
O47 is best described by an econometric model with two growth regimes. Political institutions
are the key determinant of which regime an economy belongs to, while economic institu-
Keywords: tions have a direct impact on growth rates within each regime. These findings support
Growth the hypothesis that political institutions are one of the deep causes of growth, setting the
Institutions
stage in which economic institutions and standard covariates operate. Journal of Compara-
Mixture regressions
tive Economics 42 (1) (2014) 212–229. Aix-Marseille University (Aix-Marseille School of
Economics), CNRS & EHESS, GREQAM-EHESS, Centre de la Vieille Charité, 2 rue de la Charité,
13002 Marseille, France.
Ó 2013 Association for Comparative Economic Studies Published by Elsevier Inc. All rights
reserved.
1. Introduction
Over the last decade a heated debate has taken place over the role of institutions for economic growth. Although simple
correlations indicate that growth and institutional quality are closely related, there is no consensus about the exact way in
which these two variables interact. On the one hand, the evidence on cross-country income gaps has found that income lev-
els are strongly correlated with economic institutions, while political institutions have been argued to be ‘deep’ causes of
development, acting through their impact on policies and economic institutions. On the other, studies of the determinants
of growth rates have focused on the role of political institutions, particularly that of democracy, and find that while the level
of institutional quality has no impact on growth rates, changes in the political framework do.1 In this paper we reconsider the
relationship between institutions and growth and argue that both political and economic institutions are crucial determinants
of growth rates albeit in very different ways.
The motivation for our approach is the idea that there are deep and proximate causes of growth, and that political insti-
tutions are likely to be part of the deep causes of economic performance.2 Such an argument has been proposed by Acemoglu
⇑ Corresponding author.
E-mail addresses: emmanuel.flachaire@univ-amu.fr (E. Flachaire), cecilia.garcia-penalosa@univ-amu.fr (C. García-Peñalosa), maty.konte@univ-amu.fr
(M. Konte).
1
See, amongst others, Hall and Jones (1999),Acemoglu et al. (2001), Easterly and Levine (2003) and Eicher et al. (2006) on the impact of institutions on
development and growth. Barro (1996),Persson (2004) and Persson and Tabellini (2006) examine the effect of democracy on growth rates.
2
See Galor (2005) for a discussion of deep and proximate causes of growth.
0147-5967/$ - see front matter Ó 2013 Association for Comparative Economic Studies Published by Elsevier Inc. All rights reserved.
http://dx.doi.org/10.1016/j.jce.2013.05.001
E. Flachaire et al. / Journal of Comparative Economics 42 (2014) 212–229 213
et al. (2005) through the hierarchy of institutions hypothesis which argues that political institutions ‘set the stage’ in which eco-
nomic institutions can be devised. As such, their role is indirect and operates through their impact on the economic institutions
that a country chooses or on the effect that economic policies and institutions have on growth.
Several authors, such as De Long and Shleifer (1993),Jones and Olken (2005) and Larsson and Parente (2011), have argued
that autocrats are not all alike in their objectives and policies, and that their choices have a major impact on economic per-
formance. Meanwhile, Glaeser et al. (2004) emphasize that often poor countries growth because of the policies implemented
by dictators. In fact, given the restrictions that autocratic regimes impose on economic agents, it is possible that the impor-
tance of the economic institutions that they choose is greater than in democratic regimes, where individuals have greater
freedom to pursue growth-enhancing activities. The idea that institutions may operate at various levels has also been for-
malized by Davis (2010) who models the difference between institutional quality and institutional flexibility, where the lat-
ter permits improvements in institutional quality in response to economic conditions. Davis (2010) then argues that these
two concepts capture, respectively, economic and political institutions. The role of political institutions in shaping the effect
of other variables has also been explored by Aidt et al. (2008), who examine how the impact of corruption on growth varies
across political regimes.
While there is evidence that political institutions determine the choice of economic institutions,3 no work has been done
on whether the impact of the latter on growth depends on the broader institutional context. We hence focus on this second
mechanism and argue that while economic institutions affect growth rates in the same way as standard variables such as
investment or education, political institutions are one of the deep causes of growth. To test this hypothesis we follow recent
work which emphasizes the existence of different growth regimes such that standard growth determinants have different mar-
ginal effects on growth across regimes.4
Our approach consists of using a finite mixture of regression models, a semi-parametric method for modeling unobserved
heterogeneity in the population that allows us to relax the hypothesis of one growth model. This method offers much greater
flexibility than alternative approaches that divide the data into groups. Indeed, using a dummy variable to divide the sample
is equivalent to arbitrarily allocating each country to one specific group with probability one. Rather than splitting the sam-
ple based on a priori arbitrary choices, mixture models generate endogenous group membership and permit explaining
group membership with several covariates. Countries are hence endogenously allocated to a group, and each has its own
probability of belonging to one or another group. This framework allows us to test whether political institutions rather than
having a direct impact, determine which regime a country belongs to.
We estimate mixture regressions on a panel of developed and developing countries over the period 1975–2005. Our re-
sults indicate that the data is best described by a two-regime model, with roughly a third of countries in a stable-growth
group and the rest in a group with much more dispersed growth rates. Political and economic institutions play very different
roles. The former are the key determinant of regime membership, while economic institutions are important in determining
growth rates within each of the two regimes, supporting the hypothesis that political institutions are one of the deep causes
of growth but economic institutions are not. The impact of economic institutions on growth is substantial, although its mag-
nitude differs across groups. In the high-democracy group, an increase of one standard deviation of the economic institutions
index results in an increase in growth of 0.3 percentage points, while in the low-democracy group the same increase raises
growth by 1.3 percentage points. Our results hence suggest that when political institutions are weak, growth is more sen-
sitive to the choice of economic institutions than when the former are strong.
The paper contributes to the literature on the relationship between growth and institutions, dating back to the work of
North (see North, 1981). Empirical analyses linking institutions and growth rates have focused extensively on the effect of
the degree of democratization, yet the evidence for a significant effect is weak; see Barro (1996). Recent work, such as
Persson and Tabellini (2006),Persson and Tabellini (2008), Rodrik and Wacziarg (2005) and Nannicini and Ricciuti (2010),
has found that it is not being a democracy but rather becoming one what matters for growth. For example, Persson and Tabel-
lini (2008) find that the transition from autocracy to democracy increases a country’s annual growth rate by 1 percentage
point. Moreover, Persson and Tabellini (2006) maintain that the difficulty in identifying the impact of political regimes from
within-country variations is that democracy is too broad a concept. They focus on three specific situations in which demo-
cratic reform impacts growth: the correlation between democratizations and economic liberalizations, instances where
democratic institutions influence fiscal and trade policies, and allowing for ‘expected political reforms’ that anticipate actual
reforms. In all these cases they find a stronger growth effect of democracy than is obtained in more standard growth regres-
sions. 5 Our approach is complementary to these studies in two aspects. On the one hand, our aim is to find a role for the level of
political institutions in the growth process, rather than for changes. On the other, we postulate that their impact is not a direct
one but rather operates indirectly as they determine to which growth regime a country belongs to.
Our work is also related to empirical analyses of the effect of institutions on cross-country income differences, such as
Knack and Keefer (1995),Hall and Jones (1999) and Acemoglu et al. (2001), which although methodologically different,
ask conceptually similar questions. A major difference between the two approaches is that while looking at the level of
3
See Persson (2004) and Eicher and Leukert (2009).
4
See Owen et al. (2009),DiVaio and Enflo (2011) and Bos et al. (2010).
5
Some of this work has also considered the question of parameter heterogeneity when examining the impact of transitions on growth rates. Persson and
Tabellini (2008) and Nannicini and Ricciuti (2010) examine the different impact of transitions into and out of democracy. There is also evidence that democracy
may induce changes in the level of economic institutions and through these affect growth; see the discussion and the references in De Haan et al. (2006).
214 E. Flachaire et al. / Journal of Comparative Economics 42 (2014) 212–229
GDP allows us to identify the ‘deep’ causes of development, such analyses tend to have limited policy implications because
those causes are difficult to change in the short or medium term. In contrast, growth regressions, especially when exploiting
the panel dimension, focus precisely on short-term policies. The multiple-regime model that we propose has the advantage
that it allows us to combine both approaches: time varying factors have a direct impact on growth, while ‘deep’ determinants
push countries into one or another regime and hence determine long-run output by affecting the way in which policies or
inputs affect growth.6
Most studies looking at cross-country income differences have found that economic institutions are strongly correlated
with the level of development, while political institutions tend to be insignificant.7 As a response, Acemoglu et al. (2005) have
argued that different types of institutions act at different levels, with political institutions being part of the deep causes of devel-
opment and economic institutions belonging to the set of proximate causes. Eicher and Leukert (2009) find support for this
hypothesis when they use political institutions as an instrument for economic institutions, which in turn have a significant ef-
fect on output levels. The literature on the determinants of growth rates has compared the impact of the two sets of institutions
and arrived to similar conclusions. For example, Glaeser et al. (2004) highlight the fact that, when controlling for education, the
level of economic institutions has a significant coefficient in growth regressions while political institutions do not, and Giavazzi
and Tabellini (2005) find that economic liberalizations foster growth, and this effect is magnified if they are accompanied by
political liberalizations.
Methodologically, the paper builds on the extensive literature on growth regimes, starting with Durlauf and Johnson
(1995), which tries to deal with the problem of parameter heterogeneity.8 Some recent papers have proposed the use of mix-
ture regressions models to identify different growth regimes, and here we follow this approach. DiVaio and Enflo (2011) use
historical data to identify the role of trade openness, while Bos et al. (2010) examine whether, in a world with different growth
regimes, countries change regime over time. Neither of these analyses considers the role of institutions. Owen et al. (2009) allow
for the possibility that institutions affect group membership, and some of our results will revisit their empirical analysis. The
crucial difference with their work is that we allow institutions to have both a direct and an indirect impact on growth, and in
doing so find that economic and political institutions play very different roles. Using a different approach, Aidt et al. (2008)
examine the impact of corruption on growth across different political regimes, dividing the data into two groups according
to the level of political institutions and obtaining a threshold level of institutions. They find that the effect of corruption on
growth is only significant in good-institutions economies.
The paper is organized as follows. Section 2 discusses the role of institutions in the growth process. Section 3 describes
the data, focusing on the measurement of institutions and the correlation between political and economic institutions, and
shows that standard regression methods indicate that although economic institutions have a positive and significant effect
on growth, political institutions play no role. We then move onto the central analysis of the paper, with Section 4 testing the
hypothesis that political institutions determine to which regime a country belongs to and Section 5 performing a number of
robustness analyses. The last section concludes.
2. Institutions in the growth process
In order to think about the role of institutions in the growth process, consider the following growth regression model:
growth ¼ d0 þ d1 logðgdp0 Þ þ d2 logðpopÞ þ d3 logðinvÞ þ d4 logðeduc0 Þ þ d5 eco0 þ d6 dem0 þ e: ð1Þ
The dependent variable is the average annual growth rate of real per capita GDP (growth), and the core covariates are initial
GDP per capita (gdp0), the average annual population growth rate (pop), the average investment to output ratio (inv) and ini-
tial years of schooling of the labor force (educ0). The standard approach is to also add a term that captures the rate of growth
of total factor productivity (TFP) which, in a Solow-type world, would be exogenous and common to all countries.
Alternatively, we can think of TFP growth as varying across countries and overtime, according to some country specific
variables. Eq. (1) postulates that TFP growth is driven by the institutional framework of the economy as captured by
measures of economic institutions (eco) and of political institutions (dem). As discussed earlier, starting with Barro (1996)
and Hall and Jones (1999), institutions have been argued to have a direct effect on growth and productivity. In recent years
a number of theoretical arguments have been put forward to support this relationship. For example, Aghion et al. (2008) main-
tain that political and economic freedoms are correlated with freedom of entry in product markets, which in turn encourages
innovation. More generally, the entire literature on R&D-driven endogenous growth relies on the existence of high quality
economic institutions such as free markets, the protection of property rights, particularly intellectual property rights, and
individual freedom to move across sectors or occupations. Our prior, in the light of this literature, is that economic institutions
6
We acknowledge, nevertheless, that one of the disadvantages of focusing on growth rates rather than output levels is that growth regressions are often
highly sensitive to the period and sample of countries included; this issue has been discussed by Durlauf et al. (2005). However, our key results do not seem to
be sensitive to these choices, and we refer the reader to the working paper version of this paper, which obtains equivalent results on the role of institutions
using a slightly different period and country sample.
7
See Acemoglu et al. (2002),Easterly and Levine (2003), Dollar and Kraay (2003),Glaeser et al. (2004), Acemoglu et al. (2005),Glaeser et al. (2007).
8
See also Brock and Durlauf (2001) and Eicher et al. (2007), amongst others. Huynh and Jacho-Chávez (2009) focus on the importance of allowing for non-
parametric analysis of the relationship between growth and governance, indicating that the relationship is highly non linear, while Sturm and De Haan (2005)
examine the impact of outliers. The differences between these and our approach are discussed in Section 4.
are a key factor determining productivity growth. Arguments for a direct impact of political institutions on productivity
growth have also been put forward, such as those in Aghion et al. (2008) or Acemoglu (2008), who maintain that democracies
may be better able to take advantage of new technologies. Yet these authors also argue that in the early stages of development
autocracies may result in faster growth if they allow the adoption of suitable but costly policies,9 thus introducing ambiguities
on the relationship between political institutions and growth.
It is also possible that the impact of political constraints is not direct but rather determines the coefficients on the covar-
iates in Eq. (1). This idea has been recently formalized by Larsson and Parente (2011) who model the way in which demo-
cratic and autocratic regimes choose policies and examine their impact on growth. They maintain that all democracies
implement similar policies, chosen by voters, which are conducive to moderate growth. In contrast, autocrats choose policies
according to their own preferences which are heterogeneous across regimes. Some autocrats impose policies that are con-
ducive to fast growth even if this entails costs for some sectors of the electorate, while others prefer to dampen growth in
order to benefit minority groups, an idea that is supported by the historical evidence in De Long and Shleifer (1993) and Jones
and Olken (2005). As a result, the average performance of democratic and non-democratic regimes may not be very different,
but the variance of growth rates would be much larger in the latter.
In order to test this hypothesis, we will consider the possibility that political institutions determine the type of growth
regime a country belongs to. Our expectation is that democratic countries exhibit rather homogeneous growth rates while
non-democratic ones are in a regime where growth is highly sensitive to policy choices. In particular, we will examine
whether in non-democratic regimes the economic institutions imposed by the government become a mayor factor determin-
ing growth.
3. The data
3.1. Description of the data
Most of the data we employ has been extensively used by the empirical literature on the determinants of growth rates.
We use a panel comprising 79 developed and developing countries for the period 1975–2005. Observations are averaged
over 5-year periods, yielding (at best) six data points per country and totaling 450 observations. Table 1 presents descriptive
statistics and the data sources.
We measure economic institutions by the index of Economic Freedom of the World (EFW) from the Fraser Institute; see
Gwartney and Lawson (2003) for the original description of the data. Economic freedom measures the extent to which prop-
erty rights are protected and the freedom that individuals have to engage in voluntary transactions. This measure takes into
account the respect of personal choices, the voluntary exchange coordinated by markets, freedom to enter and compete in
markets, and protection of persons and their property from aggression by others. The index is an unweighted average of 5
elements: the size of the government in the economy, the legal structure, security of property rights, the access to sound
money, the freedom to trade internationally, and the regulation of credit, labor and business. The country with the lowest
average value in our sample is Algeria (2.3) and the one with the largest is Singapore (7.92).
Our main measure of political institutions is the degree of democracy obtained from Polity IV. This measure takes into
account the competitiveness of executive recruitment, the openness of executive recruitment, the constraints on the exec-
utive, and the competitiveness of political participation. It ranges between 0 and 10, with a value of 0 denoting an autocratic
government and a value of 10 full democracy.
Measuring institutions is controversial.10 A first problem we encounter is the possibility of endogeneity as income levels and
growth may themselves affect the quality of institutions. Although a number of instruments have been proposed in the literature,
we will not use them as they have the drawback of not having a time dimension and being available for only a small number of
countries; see Acemoglu et al. (2001). Instead we will use initial values of our measures of institutions, as suggested by De Haan
et al. (2006). Second, although our two core measures of institutions have been widely used in the growth literature they have
been questioned on a number of grounds. As De Haan et al. (2006) point out, one serious drawback of the Fraser Institute measure
of economic freedom is that it captures not only institutions but also policies, and it is hence not clear whether it measures what
researchers have in mind. The Polity IV data have also been criticized, notably by political scientists, on the grounds that in an
attempt to build an indicator that is not binary, subjective perceptions have been introduced. For these reasons most of our
robustness analysis will be concerned with using alternative measures of institutions. In particular, we will examine the effect
of the different components of the Fraser Institute measure and will employ alternative measures of political institutions, such as
the binary democracy-Autocracy index proposed by Przeworski et al. (2000) and updated by Cheibub et al. (2010).
The correlation matrix in Table 2 presents some well-established facts. First, the two measures of institutions are only
moderately correlated (see Glaeser et al., 2004). Second, the correlation between growth and institutions is stronger in
the case of economic institutions than political ones, which exhibit a correlation with growth of only 0.19 compared to
0.29 for the former. Lastly, democracy covaries with education, raising the question of to what extent these two variables
have independent explanatory power in growth regressions.
9
See also Acemoglu et al. (2006).
10
For further discussions on the measurement of institutions see De Haan (2003) and Glaeser et al. (2004).
Table 1
Descriptive statistics and data sources.
Variable Obs. Mean SD Min Max Description Data source

growth 450 1.51 2.81 13.60 14.18 Average annual growth rate over 5 year period PWT 6.3
log (gdp0) 450 8.69 1.09 6.36 10.64 Log of initial real GDP per capita PWT 6.3
log (pop5) 450 1.89 0.16 1.49 2.328 Log of population growth PWT 6.3
log (inv5) 426 2.76 0.53 0.62 3.92 Log of investment rate PWT 6.3
log (educ0) 450 1.59 0.68 1.47 2.57 Log of initial average years of education Barro and Lee (2010)
of the total population aged over 25
dem0 440 5.68 4.09 0 10 Initial index of political institutions www.systemicpeace.org, Polity IV project
eco0 450 5.83 1.18 2.3 8.78 Initial index of economic institutions www.freetheworld.com, version 2009
dem75 79 4.15 4.44 0 10 Index of political institutions in 1975 www.systemicpeace.org, Polity IV project
eco75 58 5.48 1.01 3.39 7.35 Index of economic institutions in 1975 www.freetheworld.com, version 2009
Table 2
Correlation amongst main variables.
growth log (gdp0) log (pop5) log (inv5) log (educ0) eco0 dem0
growth 1.00
log (gdp0) 0.16 1.00
log (pop5) 0.25 0.70 1.00
log (inv5) 0.32 0.68 0.45 1.00
log (educ0) 0.19 0.78 0.61 0.53 1.00
eco0 0.29 0.60 0.43 0.44 0.49 1.00
dem0 0.19 0.66 0.59 0.44 0.64 0.47 1.00
Note: Output growth, population growth and investment are averaged over 5-year periods, GDP per capita, education and institutions are measured at the
start of each 5-year period. Sources are given in Table 1 above.
Table 3
Institutional patters.
Variable Mean SD
dem0
Overall 5.68 4.08
Between 3.47
Within 2.12
eco0
Overall 5.83 1.18
Between 0.94
Within 0.72
Note: Decomposition into between-country and within-country components.
To further understand the differences between our two institutional variables, Table 3 decomposes the data into their
between-country and within-country components. We can see that the two variables have roughly the same mean but
the dispersion of dem0 is substantially greater than that of eco0. The within country component is smaller than the be-
tween-country one in both cases, but the difference between the two is much larger for dem, indicating the greater relative
stability over time of this measure. Fig. 1 gives some country examples of the evolution of the two variables over time, with
democracy being depicted by the continuous line and economic institutions by the dashed one. The figure indicates substan-
tial variations over time as well as very different country patterns. In some cases, such as Botswana, the two institutions are
virtually identical, but for most countries this is not the case. There are many instances in which there is a gap between the
two variables, but the time trend is the same for both (France, India, Tunisia). The size of the gap between the two types of
institutions varies, being small in France and large in Tunisia, where economic institutions are much better than political
ones. In the US and in Egypt political institutions have remained stable while economic ones have improved over time,
but the difference between the two countries is that in the former eco0 has been catching up with dem0, while in the latter
the two measures have diverged over time. The overall tendency has been for an improvement in institutional quality but
there are exceptions, with Brazil, Peru, Venezuela and Zimbabwe being examples of countries that experienced a deteriora-
tion of one or the other measure.
3.2. Standard regression models
The data discussed above indicates that our two measures of institutions are not only conceptually different but also di-
verse in terms of their evolution over time and the degree of correlation with economic performance, raising the question of
Fig. 1. Institutions over time. Note: Democracy and economic institutions in selected countries are measured at the start of each five-year period.
Table 4
Standard regression models.
Variable Pooled-OLS Fixed-effects Random-effects IV-Random-effects

(i) (ii) (iii) (iv) (v)
intercept 11.88⁄⁄⁄ 13.19⁄⁄⁄ 60.10⁄⁄⁄ 20.81⁄⁄⁄ 14.55⁄⁄⁄
(3.205) (3.208) (5.724) (3.721) (3.798)
log (gdp0) 1.419⁄⁄⁄ 1.631⁄⁄⁄ 7.030⁄⁄⁄ 2.402⁄⁄⁄ 1.232⁄⁄⁄
(0.253) (0.256) (0.581) (0.476) (0.308)
log (pop5) 4.425⁄⁄⁄ 4.876⁄⁄⁄ 5.044⁄⁄⁄ 6.661⁄⁄⁄ 6.692⁄⁄⁄
(1.068) (1.093) (1.718) (1.275) (1.495)
log (inv5) 1.769⁄⁄⁄ 2.152⁄⁄⁄ 2.774⁄⁄⁄ 2.613⁄⁄⁄ 2.176⁄⁄⁄
(0.318) (0.328) (0.611) (0.403) (0.391)
log (educ0) 0.590⁄ 0.554⁄ 1.298⁄ 0.775⁄ 0.575
(0.309) (0.312) (0.722) (0.402) (0.495)
eco0 0.735⁄⁄⁄ 0.752⁄⁄⁄ 0.757⁄⁄⁄ 0.830⁄⁄⁄ 0.747⁄⁄
(0.145) (0.144) (0.198) (0.165) (0.371)
dem0 0.038 0.054 0.079⁄ 0.222
(0.042) (0.052) (0.0460) (0.136)
Nb obs 450 440 440 440 353
Nb countries 79 79 79 79 79
R2 0.18 0.22 0.38 0.2 0.17
BIC 2163.65 2103.78 2295.82 2129.4 –
Note: The dependent variable is the output growth. Estimations include time dummies. For IV estimation, first lags of log (educ0), dem0 and eco0are used as
instruments. Standard errors are shown in parentheses.The BIC (defined in Section 4.1) is provided to attest the goodness of fit of the estimations.
⁄
Significant at 10%.
⁄⁄
Significant at 5%.
⁄⁄⁄
Significant at 1%.
whether their role in the growth process is also different. To highlight these differences, we consider the standard ap-
proaches that have been used to examine the determinants of growth rates and ask to what extent these are able to satis-
factorily identify the impact of institutions. We first run Ordinary Least Squares (OLS) regressions, and then exploit the panel
dimension of the data, using Fixed-Effects (FE) and Random-Effects (RE) models, and show that a similar pattern emerges
from all the estimated models.
The first column in Table 4 presents pooled OLS estimation results using five-year averages of annual growth rates as our
dependent variable and examines the effect of economic institutions. We include time dummies in the covariates to take into
account time-effects. Initial GDP (gdp0), the population growth rate (pop5) over the five-year period, and investment (inv5) all
have significant coefficients with the expected signs. Initial education (educ0) is significant only at the 10% level, and this is
likely to be due to the fact that institutions and education are strongly correlated, as indicated by a number of papers that try
to disentangle the effect of these two factors.11 Alternatively, it could be the result of parameter heterogeneity due to the fact
that education and institutions have different effects on growth for different groups of countries. The coefficient on economic
institutions (eco0) is significant and positive, as expected.
The second column in Table 4 presents results for the pooled estimation including both economic and political institu-
tions, and is followed by fixed-effects and random-effects models (columns (iii) and (iv)). In these three specifications we
find, consistently, that the coefficient on economic institutions (eco0) is significant and positive, while that on political insti-
tutions (dem0) is insignificant. The literature has extensively discussed the fact that both institutional quality and educational
attainment may be determined by economic performance. To deal with the possible endogeneity of these variables, the last
column in Table 4 presents estimation results for fixed-effects models with the IV estimator used by Balestra and Varadha-
rajan-Krishnakumar (1987).12 We use the first lags of education and institutional variables as instruments and find that the
conclusions on the role of economic and political institutions remain unchanged: coefficient estimates are significant for eco,
not for dem. A number of alternative specifications, such as the Arellano-Bond and the Arellano-Bover/Blundell-Bond estima-
tions, give equivalent results (not reported).
4. Finite-mixture models
The results using standard regression models give a consistent picture: economic institutions have positive and signifi-
cant coefficients, while those on political institutions are not significant. One possible interpretation is that the level of
democracy has no impact on growth rates. An alternative is that the implicit assumptions imposed by the standard approach
are too constraining and do not allow the identification of the impact of this type of institutions. In particular, we have been
estimating regression models in which all countries follow the same growth process. But what if they do not?
Both Acemoglu et al. (2005) and Persson (2004) have argued that political institutions set the stage for economic activity
and the creation of economic institutions. It is hence possible that political institutions do not affect growth rates per se but
rather the way in which different covariates impact growth. That is, they could be a determinant of the type of growth re-
gime in which a country finds itself. To investigate this hypothesis, we need to go beyond standard regression models.
A number of approaches have been proposed in the literature to deal with the possibility of multiple growth regimes. In a
seminal paper Durlauf and Johnson (1995) use regression-tree analysis to explain growth and look at the role of education in
determining growth regimes, and this approach has been more recently employed by Paap (2002) and Kourtellos et al.
(2010). Desdoigts (1999) explores a method based on the growth trajectory followed by countries, Brock and Durlauf
(2001) use the variable coefficients model, Canova (2004) proposes a technique based on the predictive density of the data,
while Sturm and De Haan (2005) use robust estimators. In general, this body of work finds that the data is best explained by
a multiple regime model and allocates countries to groups on the basis of a threshold value of one or more indicators. Our
proposed approach is to use a finite mixture of regression model which, as we discuss below, presents important advantages
over alternative procedures.
4.1. Econometric specification
Finite mixture of regression models are semiparametric methods for modeling unobserved heterogeneity in the popula-
tion. They allow us to relax the hypothesis of one growth model and to assume that there may exist several growth paths,
that is, different groups such that the growth determinants may have different marginal effects across groups. In the regres-
sion model (1), this is equivalent to relaxing the hypothesis that the coefficients d1,d2,d3,d4,d5 and d6 are common to all coun-
tries. To illustrate the approach, let us consider the simple case of two groups, or two growth paths. A mixture of linear
regressions assumes that an observation belonging to the first group and one belonging to the second group would not
be generated by the same data-generating process. The mixture model can be written as follows:
Group1 : y ¼ xb1 þ e1 ; e1 Nð0; r21 Þ;

ð2Þ
Group2 : y ¼ xb2 þ e2 ; e2 Nð0; r22 Þ;
where y is the dependent variable, x a set of covariates, and e1 and e2 are independent and identical normally distributed
error terms within each group, with variances of r21 and r22 , respectively. Since the sets of coefficients b1 and b2 are not (nec-
essarily) equal, covariates x do not explain in the same way differences in y between observations belonging to the first
group and between observations belonging to the second group.
11
See Glaeser et al. (2004) and Bhattacharyya (2009).
12
There are alternative ways of estimating this model, such as the Arellano-Bond dynamic panel data estimator. Given that this is not the main focus of the
paper, we refrain from expanding on this issue and refer the reader to, for example, Caselli et al. (1996) and Bhattacharyya (2009) for alternative approaches to
growth regressions on panel data.
In the context of growth regressions, this mixture model assumes that countries can be classified into two groups, asso-
ciated to two different growth paths, and at least one covariate does not explain identically growth discrepancies within the
two groups. Note that such assumption can be taken into account in the standard regression model (1) if we include addi-
tional covariates computed as cross-products of the variables of interest with a dummy variable that specifies group mem-
bership. However, in this case the groups have to be defined a priori according to some prior believe of the researcher, such as
the hypothesis that the convergence coefficient is different for OECD countries than for other economies. In contrast, in a
finite-mixture model, group membership is not imposed but rather estimated so as to create classes that are homogeneous
in terms of the relationship between y and x. Moreover, the number of groups is not fixed but endogenously determined
according to an econometric criterion or test.
A set of additional covariates, called concomitant variables, can be used to characterize group profiles. Concomitant vari-
ables play the same role as covariates in a multinomial regression model designed to explain group membership. The roles of
standard covariates and of concomitant variables are different: standard covariates help to explain variations within groups,
whereas concomitant variables explain variations between groups. As a result the values of the concomitant variables will
partly determine the probability that a particular country belongs to one class or another. Note that it is possible to allow
a variable to play simultaneously the role of standard covariate and of concomitant variable. 13
A general mixture regression model can be written as follows:
X
K
f ðyjx; z; HÞ ¼ pk ðz; ak Þfk ðyjx; bk ; rk Þ; ð3Þ
k¼1
where K is the number of components or groups, pk(z, ak) is the probability of belonging to group k with a set of specific
concomitant variables z, and fk(yjx; bk, rk) is the distribution of growth rates conditional on belonging to class k and on covar-
iates x. The parameters ak,bk and rk are unknown and hence estimated. If we consider fk as Gaussian distributions with con-
ditional expectations equal to E(yjx) = xbk, for K = 1 this model reduces to (1) and for K = 2 this model reduces to (2).
The probability of belonging to a given group k0 is assumed to follow a multinomial logit model, i.e.
exp ðak0 þ zak0 Þ
pk0 ðz; ak0 Þ ¼ PK ; ð4Þ
k¼1 expðak þ zak Þ
and assesses the likelihood that a given country’s observed growth rates are generated by the process described by param-
eters ðbk0 ; rk0 Þ, given the values of x and z. This expression is noteworthy in two respects. First, it is possible to estimate the
model without any concomitant variable, in which case a country’s probabilities of being in the various regimes depend only
on the observations of growth rates y and growth determinants x. In other words, countries are allocated to the regime that
best fits their data. Second, when concomitant variables are included to explain group membership, countries are sorted into
regimes according to a combination of the values of the variables included in z as well as the pattern of growth rates y and
the values of x.
The procedure hence differs from standard approaches that use individual indicators and either interact these with the
regressors or split the sample according exclusively to the value of the indicator. Alternative procedures allocate countries
to groups on the basis of a threshold value of one or more indicators. For example, methods such as regression-tree analysis
imply that all countries with, say, a high value of political institutions will be allocated to the same group by assumption and
looks for the threshold level of institutions that divides the data into regimes. In contrast, the finite-mixture of regressions
model uses simultaneously information on the variables z and on the growth process itself to allocate a country to a regime,
and consequently there is no ’threshold’ value of the concomitant variable. In fact, it is possible that although a high value of
z increases the probability of countries to be in regime k0 some countries with high z find themselves in other groups because
their data is best described by the parameters in another regime. This means that the finite-mixture of regressions model
reverses the way in which the econometrician explains the data. With alternative procedures, an indicator is used to split
the data and then the econometricians estimates both the threshold value of the indicator and the best fit within each re-
gime. The finite-mixture of regressions model jointly estimates the parameters of the growth regression for each regime and
the determinants of regime membership. In other words, the model first identifies the extent of heterogeneity and then ex-
plains the sources of systematic heterogeneity by variables z.
Mixture models then have two desirable features. First, covariates are allowed to have different marginal effects across
groups. Second, mixture models have the ability to evaluate the profile of the different groups, or growth paths, using con-
comitant variables and the resulting classification is in terms of probabilities, so that some countries will be part of a group
with a high probability but others may have features that imply a more nuanced position. What the model does not allow is
for a country to be in different groups at different times as the concomitant variables must be constant over time.14
For a given number of components K, finite mixture models are often estimated by maximum likelihood with the EM algo-
rithm of Dempster et al. (1977), and this is the procedure we will follow. The log-likelihood function can be highly non-linear
and a global maximum can be difficult to obtain. It is then recommended to perform the estimation with many different start-
ing values. The number of components K can be selected minimizing a criterion, such as the Bayesian Information Criterion,
13
For more details on finite mixture models see Frühwirth-Schnatter (2006), pp. 274–275, McLachlan and Peel (2000) and Ahamada and Flachaire (2010). See
also the discussion in Owen et al. (2009), Section 3, for an application to growth regressions.
14
The question of regime migration is a complex one and has been recently addressed by Bos et al. (2010).
Table 5
220
Mixture models.
Mixture 1 Mixture 2 Mixture 3 Mixture 4 Statistic p-value

Group 1 (57%) Group 2 (43%) Group 1 (50%) Group 2 (50%) Group 1 (52%) Group 2 (48%) Group 1 (43%) Group 2 (57%)
Intercept 0.515 26.575⁄⁄⁄ 0.307 23.965⁄⁄⁄ 0.053 23.488⁄⁄⁄ 8.522⁄⁄⁄ 11.171⁄⁄ 0.19 0.67
(1.669) (6.986) (1.519) (6.072) (1.441) (6.070) (3.199) (4.988)
log (gdp0) 0.558⁄⁄ 2.073⁄⁄⁄ 0.674⁄⁄ 1.984⁄⁄⁄ 0.651⁄⁄ 2.019⁄⁄⁄ 1.098⁄⁄⁄ 1.381⁄⁄⁄ 0.35 0.55
(0.274) (0.433) (0.283) (0.399) (0.277) (0.395) (0.269) (0.389)
log (pop5) 0.496 10.441⁄⁄⁄ 0.482⁄ 10.519⁄⁄⁄ 0.485⁄ 10.124⁄⁄⁄ 2.365⁄⁄⁄ 5.222⁄⁄⁄ 1.793 0.18
(0.31) (2.523) (0.266) (2.322) (0.267) (2.245) (1.063) (1.759)
log (inv5) 2.489⁄⁄⁄ 3.722⁄⁄⁄ 1.742⁄⁄⁄ 3.208⁄⁄⁄ 1.807⁄⁄⁄ 3.171⁄⁄⁄ 1.895⁄⁄⁄ 1.560⁄⁄⁄ 0.29 0.59
(0.395) (0.737) (0.392) (0.689) (0.386) (0.695) (0.369) (0.477)
log (educ0) 0.303 0.844 0.303 0.802 0.263 0.779 0.044 1.037⁄⁄ 2.72 0.099
(0.359) (0.562) (0.292) (0.537) (0.279) (0.531) (0.266) (0.527)
E. Flachaire et al. / Journal of Comparative Economics 42 (2014) 212–229

eco0 0.294⁄⁄ 0.807⁄⁄⁄ 0.295⁄⁄ 0.806⁄⁄⁄ 0.298⁄⁄ 1.074⁄⁄⁄ 8.38 0.004
(0.134) (0.279) (0.134) (0.281) (0.132) (0.232)
dem0 0.067 0.066 0.031 0.039
(0.042) (0.085) (0.055) (0.074)
Concomitant variables
Intercept – 1.419 – 0.221 – 1.298⁄⁄ – 1.539⁄⁄⁄
(1.659) (1.868) (0.519) (0.498)
dem75 – – – 0.298⁄⁄⁄ – 0.271⁄⁄⁄ – 0.282⁄⁄⁄
(0.083) (0.075) (0.073)
eco75 – 0.311 – 0.307
(0.297) (0.359)
Nb obs 342 342 342 450
Nb countries 33 25 29 29 30 28 34 45
R2 0.31 0.36 0.27 0.37 0.27 0.37 0.27 0.22
BIC 1551.19 1533.09 1529.28 2089.44
CAIC 1575.19 1560.09 1546.29 2113.44
Note: The dependent variable is the output growth rate. Estimations include time dummies. Standard errors are shown in parentheses. The criteria BIC and CAIC (defined in Section 4.1) are provided to attest the
goodness of fit of the different estimations.
⁄
⁄⁄
Significant at 5%.
⁄⁄⁄
Significant at 1%.
denoted BIC and developed by Schwarz (1978), or the Conditional Akaike Information Criterion (CAIC, see Sugiura, 1978;
Hurvich and Tsai, 1989; Burnham and Anderson, 2002). More specifically, the BIC is defined as
BIC ¼ 2‘^ þ ð#paramÞ log n; ð5Þ

where ‘^ is the estimated value of the log-likelihood and n is the number of observations. A similar expression defines the
CAIC, which also includes a penalty determined by the effective degrees of freedom.
4.2. Empirical results
Our hypothesis is that political institutions do not have a direct effect on growth but rather determine the growth regime
in which a country finds itself. In contrast, economic institutions are similar to other growth determinants such as invest-
ments in physical or human capital. In order to test this hypothesis, we estimate a series of mixture models of regressions
in which we allow the political institutions variable (dem) and the economic institutions variable (eco) to act as either con-
comitant variable, as standard covariate, or both.
Table 5 presents estimation results of the mixture models. Our dependent variable is the annual rate of growth averaged
over five years. For each five-year period the standard covariates are averaged over the period, except for gdp and education
for which we use the first observation in the period. When used as a covariate, institutions are also measured at the begin-
ning of each 5-year period. In contrast, since in our specification we do not allow countries to change regime over time and
require a single observation per country, when they act as concomitants institutions are measured at the start of the sample
period, i.e. in 1975. 15 An alternative would be to use the average value over the period, an approach that we have found to give
equivalent results and which we briefly discuss in the robustness section below.
The table reports results for two groups, i.e. K = 2. We estimated the mixture models for K = 1 as well as for larger values of
K, but the BIC and CAIC criteria were minimized for K = 2, leading us to select the mixture model with 2 groups. The first two
columns estimates a model in which political institutions have a direct effect on growth, while economic institutions act as
concomitant. In this case, both variables have insignificant coefficients. The second model considers the most general case, in
which both types of institutions are allowed to play both roles. Columns 3 and 4 indicate that only economic institutions
have a significant effect as standard regressors and only political institutions have a significant coefficient as concomitants.
The results imply that both types of institutions affect growth, with the coefficients on eco and dem being both significant
at 1%. Their roles are nevertheless different. Political institutions affect group membership, with the negative coefficient on
dem indicating that when this variable increases, the probability of belonging to the second group decreases. Economic insti-
tutions are, just as in the standard regressions in Section 3.2, a determinant of the growth rate, with better institutions
increasing growth in both groups but having a larger effect in economies with low levels of democracy. These results thus
support the hypothesis that economic and political institutions operate at different levels of the growth process.16
The next two columns present our selected specification, with economic institutions being the only type of institutions
used as standard regressor and political institutions the only concomitant. Both variables are highly significant and the BIC
and CAIC criteria improve with respect to previous specifications. Note that the data used in the first three mixture models
includes only 57 countries, the reason being that data for initial economic institutions, i.e. for 1975, is often missing from our
sample. Since our selected specification does not include economic institutions, we can reestimate it using the entire sample
as data on political institutions is available for the 79 countries included.17 Model 4 reproduces the results in the previous
specification for the larger sample. Note that the value of the BIC for the model with K = 2 is equal to 2089.44, implying that
a significant improvement in fitting the data is obtained with the selected finite-mixture model as compared to the model with
K = 1 of Table 4 (BIC of 2163.65).
The last two columns (Wald test) test the null of equal coefficients in the two groups. We can see important differences in
the determinants of growth rates across the two groups. The coefficients on initial gdp, population and investment are not
statistically significantly different across groups. In contrast, human capital has a significant effect in group 2 but not on
group 1,18 while the impact of eco is much larger for group 2,19 which suggests that, ceteris paribus, an improvement in eco-
nomic institutions would have a smaller effect on growth in the high-democracy group than in low-democracy countries. More
specifically, an improvement in economic institutions of one standard deviation would increase the growth rate by 0.35 per-
centage points for group 1 countries and by 1.27 percentage points for those in group 2.
15
As discussed in the introduction, (Bos et al., 2010) use a mixture of regressions model in which they allow for regime changes, and find that although most
countries do not change regime over the period of study (1970–2005), a few do. Such regime changes would in principle be possible in our setup, but addressing
this question would require careful consideration of the exogeneity of concomitant variables, and is thus beyond the scope of this paper.
16
Owen et al. (2009) estimate a model with both economic and political institutions as concomitants but not as standard regressors, and find that only
economic institutions have a significant coefficient. We obtain the same result when eco and dem are used in this way, but as the table shows the results are
reversed once institutions are allowed to play both roles, with democracy having a significant coefficient as concomitant while eco has an insignificant one. Our
results suggest that the specification without economic institutions as standard covariate suffers from omitted variable bias and hence cannot properly identify
the role played by the two types of institutions.
17
The panel is unbalanced, hence for some countries in the larger sample we are missing observations for the first one or two periods due to the absence of eco
for 1975 and 1980. However, the data for initial political institutions, dem75, is available and can be used whenever dem is the only concomitant.
18
On the empirical relationship between growth and human capital see, amongst others, De la Fuente and Domenech (2001) and Temple (2001).
19
This is in line with the findings of Eicher and Leukert (2009) who divide their sample between OECD and non-OECD countries and obtain that economic
institutions have a stronger effect on output levels in the latter.
Table 6
Country classification.
Group 1 Group 2
Country Probability Country Probability Country Probability Country Probability
Australia 0.99 Norway 0.98 Algeria 0.99 Malawi 0.98
Austria 0.99 Pakistan 0.99 Argentina 0.99 Malaysia 0.99
Bangladesh 0.98 Senegal 0.96 Bolivia 0.99 Mexico 0.95
Belgium 0.99 South Africa 0.99 Botswana 0.99 Nicaragua 1
Benin 0.63 Sri Lanka 0.91 Brazil 0.53 Niger 1
Canada 0.99 Sweden 0.99 Cameroon 1 Panama 0.64
Colombia 0.93 Switzerland 0.99 Central Africa, 1 Papua New Guinea 1
Costa Rica 0.56 Tunisia 0.88 Chile 1 Paraguay 0.99
Denmark 0.99 Turkey 0.99 Cyprus 1 Peru 1
Fiji 0.93 UK 0.99 Ecuador 1 Philippines 0.99
Finland 0.95 US 0.99 Egypt 0.99 Poland 0.98
France 0.99 El Salvador 0.99 Sierra Leone 1
Germany 0.96 Guatemala 0.99 Singapore 0.99
Ghana 0.93 Haiti 1 Tanzania 0.99
Greece 0.95 Honduras 0.99 Thailand 1
India 0.99 Hungary 0.56 Togo 1
Israel 0.87 Indonesia 0.98 Trinidad Tobago 1
Italy 0.99 Iran 1 Uganda 0.97
Japan 0.98 Ireland 0.99 Uruguay 1
Mali 0.99 Jamaica 0.99 Venezuela 0.99
Nepal 0.65 Jordan 1 Zambia 1
Netherlands 0.99 Kenya 0.90 Zimbabwe 1
New Zealand 0.99 South Korea 1
Means of key variables by group
Group 1 Group 2
growth 1.77 1.18
(1.29) (3.51)
log (inv) 2.84 2.79
(0.58) (0.65)
log (educ) 1.67 1.39
(0.75) (0.59)
eco 5.83 5.38
(1.39) (1.24)
dem 7.33 3.88
(3.46) (3.71)
Note: The classification is obtained from the mixture model with group membership posterior probabilities in Table 5, model 4. Countries are allocated to a
group if their probability of belonging to this group is higher than 0.5. The means of key variables are calculated for each group and standard errors are given
in parenthesis.
The relative impacts of growth determinants also vary across groups. In group 1, education plays no role and economic
institutions only a moderate one, while investment is a key determinant of growth. A one standard deviation increase in the
former and latter variables raise by 0.35 and 1.00 percentage points respectively. In contrast, in group 2 human and physical
capital have roughly similar effects, while that of economic institutions is well above that of other factors. An increase of one
standard deviation in each of these variables raises annual growth by 0.71, 0.83 and 1.27 percentage points, respectively.
4.3. Regime membership
Consider now the composition of the two groups. The probability that a specific country belongs to a given group can be
computed using Bayes rule, with the posterior probability that country i belongs to group k0 being equal to
p 0 ðz ; a^ 0 Þf 0 ðy jx ; b^ ; r^ Þ
p^ ik0 ¼ PK k i k k i i k^ k : ð6Þ
k¼1 pk ðzi ; ak Þfk ðyi jxi ; bk ; rk Þ
^ ^
We use the model reported in Table 5 to compute p ^ ik0 , and allocate country i to group 1 if and only if the probability of being
in that group is greater than that of being in group 2. The first group includes 34 countries and the second 45. Table 6 reports
the classification of the countries with their group membership posterior probability. In general, these probabilities are close
to one, yet there are some exceptions such as Costa Rica, Brazil or Hungary which have roughly the same probability of being
in one or the other group. A majority of the countries belonging to the first group are rich countries, although it also includes
Bangladesh, Benin, Colombia, Ghana, Mali, Nepal, Pakistan, South Africa, Sri Lanka, Tunisia and Turkey. In the second group
we find mainly middle- and low-income countries, however the classification does not exactly coincide with the ones ob-
tained by ad hoc ex ante divisions. For example, it includes several OECD members (Chile, Ireland, Mexico, and Poland).
It is important to understand the role played by the concomitant variables. The finite-mixture of regression models divide
the data into groups according to similarities in their data generating process, even in the absence of concomitant variables.
Our estimation without concomitants (not reported) also implies that the data is best described by a model with two growth
regimes. Concomitants then help us understand what variables make it more likely that a country is in a particular group. In
our case, countries with high levels of democracy are more likely to be in group 1, although not all democratic countries fol-
low that process and not all countries in group 1 are highly democratic.
The bottom panel of Table 6 reports the average values of growth and institutions for the two groups, as well as the
within-group standard deviations. These averages have been calculated by giving countries in a group a weight equal to
their probability of being in it. There are important differences across groups in some variables but not in others. The aver-
age growth rate is only 0.6 percentage points higher for group 1 than for group 2. However, the latter exhibits a much
larger standard deviation (3.51 against 1.29 for group 1), indicating that the data is split into a stable-growth regime
and one where growth is highly variable. This is not surprising given that the second group includes both some of the
so-called ‘growth miracles’ and ‘growth disasters’; see Durlauf et al. (2005). Moreover, the large coefficients found for some
variables, notably economic institutions, and the role played by others such as education imply that in group 2 differences
in policy choices result in major gaps in long-run economic performance. That is, the larger coefficients on growth deter-
minants obtained for group 2 help us understand the much larger variance of growth in those countries since they imply
that a given difference in, say, economic institutions would result in a larger difference in growth performance in the sec-
ond group than in the first one. Interestingly, differences across groups in economic institutions are small, with average
values of 5.83 and 5.38 and similar standard deviations. In contrast, group 1 exhibits an average value of our index of
political institutions which is almost twice that observed in group 2 (7.33 and 3.88, respectively). Although the standard
deviation of dem is somewhat lower for group 1 than for group 2, it nevertheless indicates a substantial variation in the
quality of political institutions even for this group.
Table 7
Alternative measures of political institutions.
Variable Mixture 1 Mixture 2 Mixture 3 Mixture 4

Group 1 Group 2 Group 1 Group 2 Group 1 Group 2 Group 1 Group 2
(43%) (57%) (41%) (59%) (45%) (55%) (42%) (58%)
Intercept 8.251⁄⁄⁄ 11.283⁄⁄ 9.148⁄⁄⁄ 10.764⁄⁄ 8.855⁄⁄⁄ 11.214⁄⁄ 8.618⁄⁄ 10.843⁄⁄
(3.117) (4.985) (3.403) (4.891) (3.359) (5.071) (3.769) (4.987)
log (gdp0) 1.093⁄⁄⁄ 1.339⁄⁄⁄ 1.239⁄⁄⁄ 1.328⁄⁄⁄ 1.076⁄⁄⁄ 1.401⁄⁄⁄ 1.021⁄⁄⁄ 1.356⁄⁄⁄
(0.275) (0.381) (0.332) (0.379) (0.277) (0.396) (0.315) (0.388)
log (pop5) 2.256⁄⁄ 5.316⁄⁄⁄ 2.299⁄⁄ 5.148⁄⁄⁄ 2.589⁄⁄ 5.199⁄⁄⁄ 2.572⁄⁄ 5.074⁄⁄⁄
(1.048) (1.768) (1.102) (1.727) (1.175) (1.793) (1.235) (1.760)
log (inv5) 1.891⁄⁄⁄ 1.552⁄⁄⁄ 1.960⁄⁄⁄ 1.591⁄⁄⁄ 1.866⁄⁄⁄ 1.545⁄⁄⁄ 1.789⁄⁄⁄ 1.549⁄⁄⁄
(0.365) (0.474) (0.392) (0.473) (0.371) (0.483) (0.371) (0.477)
log (educ0) 0.051 0.970⁄ 0.206 0.922⁄ 0.012 1.102⁄⁄ 0.027 1.069⁄⁄
(0.270) (0.523) (0.332) (0.526) (0.285) (0.540) (0.303) (0.533)
eco0 0.302⁄⁄ 1.048⁄⁄⁄ 0.319⁄⁄ 1.048⁄⁄⁄ 0.301⁄⁄ 1.079⁄⁄⁄ 0.300⁄⁄ 1.045⁄⁄⁄
(0.135) (0.227) (0.136) (0.228) (0.137) (0.237) (0.145) (0.233)
Concomitant
variables
Intercept – 2.421⁄⁄⁄ – 1.500 ⁄⁄⁄ – 2.098⁄⁄⁄ – 2.733⁄⁄⁄
(0.754) (0.554) (0.717) (0.946)
xconst75 – 0.490⁄⁄⁄
(0.136)
demautoc75 – 2.448⁄⁄⁄
(0.664)
pr75 – 0.434⁄⁄⁄
(0.137)
cl75 – 0.547⁄⁄⁄
(0.183)
Nb obs 450 450 444 444
Nb countries 34 45 32 47 35 43 33 45
R2 0.28 0.22 0.29 0.22 0.28 0.23 0.28 0.23
BIC 2089.91 2090.19 2076.23 2076.39
CAIC 2113.91 2114.19 2100.23 2100.39
Note: The dependent variable is output growth. Estimations include time dummies. The criteria BIC and CAIC defined in Section 4.1 are provided to attest
the goodness of fit of the different estimations. Standard errors are shown in parentheses.The criteria BIC and CAIC defined in Section 4.1 are provided to
attest the goodness of fit of the different estimations.
⁄
⁄⁄
Significant at 5%.
⁄⁄⁄
Significant at 1%.
5. Robustness analysis
5.1. Alternative measures of institutions
In order to test the robustness of our results we conduct a number of further estimations. We start by considering alter-
native measures of institutions, and we do that in two steps. First we proceed to use different measures of political institu-
tions as concomitants, and we then decompose the Economic Freedom index into its five components.
As we have already discussed, measuring institutions is not straight forward. We hence consider alternative measures of
political institutions. We use the index of executive constraints (xconst) provided by Polity IV to measure the extent to which
the decision making powers of chief executives are constrained and a binary dummy that measures whether a country is a
democracy or an autocracy denoted demautoc, from the Democracy-Dictatorship data. The former measure is used, among
others, by Glaeser et al. (2004) who argue that, together with dem it is one of the least flawed measures of institutions, while
the latter has been employed by Cheibub et al. (2010), amongst others. A variable that has been widely used is the Freedom
House Political Rights index, which is a measure of political liberties such as free and fair elections, party competition, and
whether the opposition has power. Our last measures are its two components, an index of property right protection (pr) that
measures how free people are to participate in the political process and an index of civil liberties (cl) which is an indicator of
freedom of expression and belief, rule of law, and personal autonomy without interference from the state.
The results are reported in Table 7. In all four models, economic institutions remain highly significant and exhibit very
different coefficients for the two groups. The four measures of political institutions all exhibit the same pattern, with good
Table 8
Disaggregated components of economic institutions.
Mixture 1 Mixture 2 Mixture 3 Mixture 4 Mixture 5 Mixture 6

Group 1 Group 2 Group 1 Group 2 Group 1 Group 2 Group 1 Group 2 Group 1 Group 2 Group 1 Group
(43%) (57%) (42%) (48%) (43%) (57%) (44%) (56%) (42%) (58%) (44%) 2(56%)
Intercept 8.758⁄⁄⁄ 7.958 11.211⁄⁄⁄ 4.077 8.838⁄⁄⁄ 11.256⁄⁄ 7.936⁄⁄ 15.212⁄⁄ 8.4617⁄⁄ 7.345 8.111⁄⁄⁄ 11.135⁄⁄
(3.216) (5.033) (3.634) (5.013) (3.371) (5.246) (3.249) (5.979) (3.377) (5.002) (3.109) (5.084)
log (gdp0) 0.794⁄⁄⁄ 0.881⁄⁄ 1.175⁄⁄⁄ 0.999⁄⁄⁄ 0.909⁄⁄⁄ 1.040⁄⁄⁄ 1.701⁄⁄⁄ 1.188⁄⁄⁄ 0.968⁄⁄⁄ 0.940⁄⁄ 1.047⁄⁄⁄ 1.188⁄⁄⁄
(0.243) (0.377) (0.319) (0.381) (0.259) (0.386) (0.427) (0.406) (0.249) (0.383) (0.251) (0.39)
log (pop5) 3.04⁄⁄⁄ 3.732⁄⁄ 2.965⁄⁄ 2.016 2.592⁄⁄ 4.921⁄⁄⁄ 1.077 6.264⁄⁄⁄ 2.811⁄⁄ 4.641⁄⁄⁄ 2.454⁄⁄ 5.363⁄⁄⁄
(1.036) (1.748) (1.195) (1.741) (1.157) (1.855) (0.827) (1.989) (1.126) (1.765) (1.035) (1.806)
log (inv5) 1.772⁄⁄⁄ 2.064⁄⁄⁄ 2.046⁄⁄⁄ 1.739⁄⁄⁄ 1.819⁄⁄⁄ 1.679⁄⁄⁄ 2.602⁄⁄⁄ 1.607⁄⁄⁄ 1.905⁄⁄⁄ 1.961⁄⁄⁄ 1.911⁄⁄⁄ 1.644⁄⁄⁄
(0.351) (0.492) (0.345) (0.476) (0.373) (0.504) (0.371) (0.485) (0.367) (0.487) (0.357) (0.484)
log (educ0) 0.069 0.948⁄ 0.2 1.069⁄ 0.027 1.107⁄⁄ 0.169 0.673 0.092 0.438 0.023 0.972⁄
(0.261) (0.533) (0.319) (0.550) (0.274) (0.551) (0.409) (0.527) (0.261) (0.560) (0.259) (0.533)
eco10 0.100 0.062
(0.073) (0.143)
eco20 0.021 0.484⁄⁄⁄
(0.085) (0.155)
eco30 0.062 0.298⁄⁄⁄
(0.065) (0.108)
eco40 0.499⁄⁄⁄ 0.416⁄⁄
(0.109) (0.194)
eco50 0.291⁄⁄ 0.818⁄⁄⁄
(0.137) (0.249)
eco13450 0.313⁄⁄ 0.757⁄⁄⁄
(0.125) (0.219)
Concomitant
variables
Intercept – 1.589⁄⁄⁄ – 1.817⁄⁄⁄ – 1.517⁄⁄⁄ – 1.549⁄⁄⁄ – 1.548⁄⁄⁄ – 1.531⁄⁄⁄
(0.477) (0.524) (0.525) (0.458) (0.557) (0.481)
dem75 – 0.283⁄⁄⁄ – 0.322⁄⁄⁄ – 0.277⁄⁄⁄ – 0.299⁄⁄⁄ – 0.272⁄⁄⁄ – 0.276⁄⁄⁄
(0.071) – (0.076) (0.074) (0.070) (0.075) (0.071)
Nb obs 449 424 450 445 435 450
Nb countries 34 45 33 46 34 45 35 44 33 46 35 44
R2 0.26 0.15 0.28 0.18 0.25 0.18 0.39 0.17 0.28 0.19 0.28 0.19
BIC 2110.05 1966.24 2107.33 2074.82 2006.24 2097.48
CAIC 2134.05 1990.24 2131.33 2098.82 20130.24 2121.48
Note: The dependent variable is the output growth rate. Estimations include time dummies. The variables eco10, eco20, eco30, eco40 and eco50 are the
different component of our main measure of economic institutions eco0, eco13450 is the unweighted average of the four policy variables (eco10, eco30, eco40
and eco50). Standard errors are shown in parentheses.The criteria BIC and CAIC defined in Section 4.1 are provided to attest the goodness of fit of the
different estimations.
⁄
⁄⁄
Significant at 5%.
⁄⁄⁄
Significant at 1%.
Table 9
Additional concomitants.
Variable Mixture 1 Mixture 2 Mixture 3 Mixture 4

Group 1 (53%) Group 2 (48%) Group 1 (41%) Group 2 (59%) Group 1 (41%) Group 2 (59%) Group 1 (42%) Group 2 (58%)
Intercept 6.590⁄⁄⁄ 20.501 ⁄⁄⁄ 6.834⁄ 11.645⁄⁄ 6.719⁄ 11.648⁄⁄ 7.249⁄⁄ 11.422⁄⁄
(3.314) (6.319) (3.7) (4.947) (3.746) (4.936) (2.883) (4.905)
log (gdp0) 0.889⁄⁄⁄ 1.968⁄⁄⁄ 1.03⁄⁄⁄ 1.322⁄⁄⁄ 1.015⁄⁄ 1.319⁄⁄⁄ 1.012⁄⁄⁄ 1.309⁄⁄⁄
(0.294) (0.428) (0.388) (0.373) (0.394) (0.372) (0.270) (0.366)
log (pop5) 1.917⁄ 8.340⁄⁄⁄ 1.8⁄ 5.448⁄⁄⁄ 1.777⁄ 5.448⁄⁄⁄ 1.948⁄⁄ 5.396⁄⁄⁄
(1.100) (2.327) (1.055) (1.765) (1.058) (1.762) (0.949) (1.750)
log (inv5) 1.816⁄⁄⁄ 2.468⁄⁄⁄ 1.873⁄⁄⁄ 1.518⁄⁄⁄ 1.858⁄⁄⁄ 1.515⁄⁄⁄ 1.830⁄⁄⁄ 1.508⁄⁄⁄
(0.431) (0.702) (0.375) (0.463) (0.376) (0.463) (0.347) (0.465)
log (educ0) 0.206 0.841 0.005 1.014⁄⁄ 0.002 1.016⁄⁄ 0.032 0.991⁄⁄⁄
(0.277) (0.583) (0.360) (0.507) (0.365) (0.505) (0.2628) (0.501)
eco0 0.264⁄⁄ 0.98⁄⁄⁄ 0.332⁄⁄ 1.016⁄⁄⁄ 0.331⁄⁄ 1.012⁄⁄⁄ 0.291⁄⁄ 1.027⁄⁄⁄
(0.131) (0.312) (0.139) (0.225) (0.140) (0.224) (0.135) (0.217)
time dummies
Intercept – 1.010 – 2.541⁄⁄⁄ – 2.618⁄⁄⁄ – 0.847
(0.629) (0.891) (0.965) (0.595)
dem75 – 0.384⁄⁄⁄ – 0.145⁄ – 0.147⁄ – 0.265⁄⁄⁄
(0.121) (0.088) (0.088) (0.084)
educ75 – 0.628
(0.558)
oecd – 1.16 – 1.149
(1.155) (1.151)
lat – 4.00 – 4.109
(3.289) (3.337)
landlock – 0.202
(0.897)
subafric – 0.532
(0.793)
latincar – 4.473⁄
(2.314)
Nb obs 342 450 450 450
Nb countries 30 27 32 47 32 47 33 46
R2 0.23 0.32 0.29 0.22 0.29 0.22 0.29 0.22
BIC 1544.83 2087.07 2091.37 2087.21
CAIC 1569.83 2112.07 2118.37 2114.21
Note: The dependent variable is the output growth rate. Estimations with time dummies. Standard errors are shown in parentheses.The criteria BIC and CAIC
defined in Section 4.1 are provided to attest the goodness of fit of the different estimations.
⁄
⁄⁄
Significant at 5%.
⁄⁄⁄
Significant at 1%.
political institutions reducing the probability of being in group 2. The number of countries in each group changes slightly
across specifications, which is not surprising given that on Table 6 we saw that some countries have probabilities close to
0.50 of being in one or the other group. As a result, some of these countries move across groups depending on the
specification.
We turn next to our measure of economic institutions. Economic freedom measures the extent to which property rights
are protected and the freedom that individuals have to engage in voluntary transactions. However, as argued by De Haan
et al. (2006) amongst others, it is not entirely clear whether this measure captures institutions or policies. One of its com-
ponents, the legal structure, is clearly part of the institutional context, but the others can be seen as policy choices rather
than institutions. For our purposes, whether we interpret the index eco as policies or as institutions does not alter our
key hypothesis that political institutions act as a different level from other constraints on economic agents, whether the lat-
ter are in the form of economic institutions or policies. It is nevertheless useful to decompose the index into its components
to examine the effect of each of them.
Recall that eco is an unweighted average of 5 elements: the size of the government in the economy (eco10), the legal struc-
ture and the security of property rights (eco20), the access to sound money (eco30), the freedom to trade internationally
(eco40), and the regulation of credit, labor and business (eco50). Table 8 presents the results for our mixture model for each
of these components. Legal institutions and property rights, i.e. eco20, have an equivalent effect to that obtained with the
index as a whole, namely they have an insignificant impact on growth in group 1 but a positive and significant one on group
2. In contrast, the effect of policy varies depending on the indicator. Government size does not have an effect on growth in
either of the two regimes (mixture model 1), while access to sound money is important only for group 2 (mixture model 3).
The other two policy measures have significant coefficients for both groups, with the effect being the same across regimes for
freedom to trade but much larger in group 2 than in group 1 for the degree of regulation. This indicates that although the
Table 10
OECD vs Non-OECD.
Variable [1] [2]

Group 1 (42%) Group 2 (58%) OECD Non-OECD
Intercept 6.863⁄⁄ 11.768⁄⁄ 16. 97⁄⁄⁄ 11.85⁄⁄⁄
(3.027) (4.934) (5.363) (4.273)
log (gdp0) 1.019⁄⁄⁄ 1.290⁄⁄⁄ 2.845⁄⁄⁄ 1.134⁄⁄⁄
(0.313) (0.366) (0.471) (0.320)
log (pop5) 1.847⁄⁄ 5.577⁄⁄⁄ 3.138⁄⁄ 5.261⁄⁄⁄
(0.938) (1.765) (1.411) (1.574)
log (inv5) 1.873⁄⁄⁄ 1.486⁄⁄⁄ 3.310⁄⁄⁄ 1.387⁄⁄⁄
(0.348) (0.462) (0.618) (0.393)
log (educ0) 0.024 1.001⁄⁄ 0.829 0.458
(0.304) (0.506) (0.572) (0.378)
eco0 0.318⁄⁄ 1.015⁄⁄⁄ 0.896⁄⁄⁄ 0.849⁄⁄⁄
(0.136) (0.218) (0.232) (0.192)
Intercept – 1.925⁄⁄⁄
(0.679)
dem30 – 0.343⁄⁄
(0.148)
oecd – 0.811
(1.084)
latincar – 4.81⁄
(2.599)
Nb obs 450 141 309
Nb country 33 46 24 55
R2 0.3 0.22 0.41 0.17
BIC 2076.77 513.08 1570.98
CAIC 2102.77 524.08 1581.98
Note: The dependent variable is the output growth rate. Estimations include time dummies. Standard errors are shown in parentheses.The criteria BIC and
CAIC defined in Section 4.1 are provided to attest the goodness of fit of the different estimations.
⁄
⁄⁄
Significant at 5%.
⁄⁄⁄
Significant at 1%.
absence of trade openness harms growth in all regimes, the costs of regulation are particularly high in non-democratic re-
gimes where powerful groups may engage in rent extraction at a scale that would not be possible in a democracy. These
results are consistent with the findings by Bhattacharyya (2009) who considers a four-way classification of economic insti-
tutions: market creating, market regulating, market stabilising, and market legitimising institutions. His measures are clo-
sely related to the various elements into which we decompose Economic Freedom. Market creating institutions are proxied
by the ICRG law and order index, a measure close to eco20, market stabilising institutions are proxied by sound money, i.e.
eco30, market regulating institutions by eco50, and market legitimising institutions by the Polity IV democracy index. Bhat-
tacharyya (2009) finds that market legitimising institutions have no direct impact on growth, in line with our results on
political institutions as standard variables, while the other three types of institutions have a significant effect. The last col-
umn of Table 8 (mixture model 6) includes the unweighted average of all the policy variables (eco10, eco30, eco40, and eco50)
and finds a significant effect of the resulting index in both groups, although the coefficient is over twice as large for group 2
than for group 1.
To sum up, our robustness analysis indicates that, just as in our benchmark estimation, political institutions play a key
role in determining class membership in all specifications. When we decompose our measure of economic freedom into a
core institutional component and the policy components we find that both types of variables have different impacts across
groups. The legal structure seems to be important only in the low-democracy regime, while policy measures have an effect in
both regimes albeit stronger in group 2.
5.2. The determinants of group membership
Our next robustness test consists in estimating alternative specifications for the concomitant variables. Table 9 includes
several concomitant variables that have been considered in previous work as possible determinants of group membership:
education, OECD membership and geographical characteristics. There are two reasons for including education. First, some of
the early literature on multiple growth paths postulated that education levels were a key determinant of which group a
country belonged to; see Durlauf and Johnson (1995). Second, it has been argued that education and political institutions
are closely related and that higher education levels lead to good political institutions.20 Glaeser et al. (2004) show that there
20
See Lipset (1960) for the seminal work, and Eicher et al. (2009) for a model of the relationship between education, institutions and economic performance.
is a strong correlation between some measures of political institutions, such as executive constraints, and educational attain-
ment, and their results indicate that the coefficient on political institutions looses its significance once education is included.
This evidence indicates that it is possible that education also erodes the effect of political institutions as a determinant of group
membership, and we hence include education as a concomitant variable. In order to avoid the potential bias due to the endo-
geneity of education we will use as concomitant variable the initial level of education, i.e. education in 1975, rather than the
average over the entire period.
Geography has been argued to have an effect on institutions and hence it is possible that our measure of political insti-
tutions is simply capturing the impact of location on group membership. Similarly, regressions are often estimated sepa-
rately for OECD and non-OECD countries which are argued to follow a different growth process. It is thus conceivable
that the measure of institutions is acting as a proxy for OECD membership. Our regressions in Table 9 hence include latitude,
a dummy for OECD countries and one for whether or not the country is landlocked.
The regressions in Table 9 show that our measure of political institutions retains a significant coefficient even when edu-
cation is included as concomitant. The coefficient on education is insignificant, indicating that political institutions rather
than initial education is the key variable determining to which growth regime a country belongs. The next two specifications
include latitude and the OECD dummy, and these two together with a dummy for countries that are landlocked. In both cases
the additional variables have insignificant coefficients. Our measure of democracy retains its significance although only at
the 10 percent level, a result that can be explained by the correlation across concomitants. Mixture model 4 includes regional
dummies, one for Sub-Saharan African countries and another for Latin American and Caribbean ones. Only the latter is sig-
nificant, and being a Latin American economy tends to increase the probability of being in group 2. The coefficient on polit-
ical institutions remains significant and the effects of the various standard regressors are equivalent to those obtained in our
core specification.
It is important to emphasize that the classification resulting from the mixture model differs from that obtained when we
divide the sample into OECD and non-OECD economies. Table 10 hence reports two alternative models. The first one is a
mixture model in which political institutions, the OECD dummy and the Latin-American-Caribbean dummy are included.
It reproduces our earlier results, with dem and latincar being significant respectively at the 1% and 10% levels respectively
and OECD having an insignificant coefficient. The coefficients on education and ecovary across groups, as we found before,
with education having an insignificant coefficient and ecoa moderate effect on group 1 and both variables having significant
and economically sizeable impacts for group 2. The next two columns present the pooled regressions we obtain when we
divide the sample into OECD and non-OECD economies, as is often done in the literature. Unfortunately, there is no straight
forward way of comparing the goodness of fit of the two models. Note, however, that their implications differ substantially.
The main differences across regimes that we found, notably that education has a significant coefficient in group 2 and that
the impact of eco differs across groups, have evaporated and both variables have the same impact across the two groups, a
significant and positive one in the case of eco and an insignificant one for educ. As a result, this ex ante sample division would
lead to the conclusion that education has no effect on growth for either subset of countries and that economic institutions
are equally important across the two groups, both of them results that the mixture model contradicts.
6. Conclusions
This paper has tried to shed light on the debate concerning the role of institutions in the growth process by testing the
idea that political institutions are one of the deep determinants of growth which set the stage in which economic institutions
and other variables affect growth. Our hypothesis is that there exist multiple growth regimes such that the marginal impacts
of the determinants of growth vary across regimes, and that political institutions are the key factor determining to what re-
gime a country belongs to.
The data supports the existence of two growth regimes. The first exhibits slightly higher growth rates, averaging 1.8% per
annum, while the second is characterized by lower but highly dispersed growth rates, with a mean of 1.2% and a standard
deviation which is almost three times as high as in the first group. Membership of the first regime is more likely when polit-
ical institutions are strong but is unaffected by economic institutions. In fact, in the two regimes the average level of eco-
nomic institutions is rather similar, indicating that the two types of institutions operate at different levels. These results
are in line with recent work that emphasizes how, in autocratic regimes, economic performance is highly sensitive to policy
choices.
When we focus on the determinants of growth rates within regimes, it is economic rather than political institutions that
play a role. The coefficient on economic institutions is systematically larger for the low-democracy regime, being about three
times that found in the high-democracy group. As a result, an improvement in economic institutions of one standard devi-
ation increases annual growth by 1.2 percentage points in the former group of economies. The low-democracy regime is also
characterized by a high return to human capital accumulation, a variable that seems to have no significant effect on growth
for the other group.
Our results shed light on two open debates. The first concerns the impact of the level of political institutions on growth,
and our findings indicate that indeed such institutions do not have a direct impact on growth rates. The second is the debate
on the proximate and deep determinants of growth. Our results show that political institutions belong to the latter class of
variables, and that as such influence the environment in which growth occurs. Because they determine the marginal impact
of standard factors such as investment in human and physical capital, they are a central element in the growth process even
in the absence of a significant direct effect.
The main policy implication of our analysis is that economic and political institutions can be substitutes in the growth
process. Countries in which the latter are strong tend to exhibit high growth rates and a low return to improvements in eco-
nomic institutions. In contrast, countries with weak political institutions have lower average growth rates but a high return
to economic institutions. As a result, economies where democracy is weak but where autocratic governments improve eco-
nomic institutions can attain fast growth, and the example of several East-Asian economies comes to mind. 21 Does this mean
that good political institutions are unnecessary for successful growth strategies? In the short-run the answer seems to be yes,
although the question of whether this is so also in the medium term remains open. It is possible that growth strategies that are
successful at early stages of development are not able to sustain growth in mature economies. If so, our results indicate that a
growth regime change can only occur if there is a political regime change.
Acknowledgments
The paper has benefited from the comments of Alain Desdoigts, Theo Eicher, Stephan Klasen, Michel Lubrano, and audi-
ences at the EEA meetings, the AFSE meetings and Greqam, as well as from those by two referees. This work was partly sup-
ported by the French National Research Agency Grant ANR-08-BLAN-0245-01.
References
Acemoglu, D., 2008. Oligarchic versus democratic societies. Journal of the European Economic Association 6, 1–44.
Acemoglu, D., Aghion, P., Zilibotti, F., 2006. Distance to frontier, selection, and economic growth. Journal of the European Economic Association 4, 37–74.
Acemoglu, D., Johnson, S., Robinson, J.A., 2001. The colonial origins of comparative development: an empirical investigation. American Economic Review 91,
1369–1401.
Acemoglu, D., Johnson, S., Robinson, J.A., 2002. Reversal of fortune: geography and institutions in the making of the modern world income distribution.
Quarterly Journal of Economics 117, 1231–1294.
Acemoglu, D., Johnson, S., Robinson, J.A., 2005. Institutions as the fundamental cause of long-run economic growth. In: Agion, P., Durlauf, S. (Eds.), Handbook
of Economic Growth. North Holland, Amsterdam, pp. 385–472.
Aghion, P., Alesina, A., Trebbi, F., 2008. Democracy, technology, and growth. In: Helpman, E. (Ed.), Institutions and Economic Performance. Harvard
University Press.
Ahamada, I., Flachaire, E., 2010. Non-Parametric Econometrics. Oxford University Press.
Aidt, T., Dutta, J., Sena, V., 2008. Governance regimes, corruption and growth: theory and evidence. Journal of Comparative Economics 36, 195–220.
Balestra, P., Varadharajan-Krishnakumar, J., 1987. Full information estimation of a system of simultaneous equations with error component structure.
Econometric Theory 3, 223–246.
Barro, R., 1996. Democracy and growth. Journal of Economic Growth 1, 1–27.
Barro, R., Lee, J.-W., 2010. A new data set of educational attainment in the world. NBER Working Paper No. 15902, 1950–2010.
Bhattacharyya, S., 2009. Unbundled institutions, human capital and growth. Journal of Comparative Economics 37, 106–120.
Bos, J., Economidou, C., Koetter, M., Kolari, J., 2010. Do all countries grow alike? Journal of Development Economics 91, 113–127.
Brock, W., Durlauf, S., 2001. Growth economics and reality. The World Bank Economic Review 15, 229–272.
Burnham, K., Anderson, D., 2002. Model Selection and Multimodel Inference: A Practical Information-Theoretic Approach, second ed. Springer-Verlag.
Canova, F., 2004. Testing for convergence clubs in income per capita: a predictive density approach. International Economic Review 45, 49–77.
Caselli, F., Esquivel, G., Lefort, F., 1996. Reopening the convergence debate: a new look at cross-country growth empirics. Journal of Economic Growth 1,
363–389.
Cheibub, J.A., Ghandhi, J., Vreeland, J., 2010. Democracy and dictatorship revisited. Public Choice 143, 67–101.
Davis, L.S., 2010. Institutional flexibility and economic growth. Journal of Comparative Economics 38, 306–320.
De Haan, J., 2003. Economic freedom: editor’s introduction. European Journal of Political Economy 19, 395–403.
De Haan, J., Lundstrom, S., Sturm, J.-E., 2006. Market-oriented institutions and policies and economic growth: a critical survey. Journal of Economic Surveys
20, 157–191.
De la Fuente, A., Domenech, R., 2001. Schooling data, technological diffusion and the neoclassical model. American Economic Review 91, 323–327.
De Long, J.B., Shleifer, A., 1993. Princes and merchants: city growth before the industrial revolution. Journal of Law and Economics 36, 671–702.
Dempster, A.P., Laird, N.M., Rubin, D.B., 1977. Maximum likelihood from incomplete data via EM algorithm (with discussion). Journal of the Royal Statistical
Society B 39, 1–38.
Desdoigts, A., 1999. Patterns of economic development and formation of clubs. Journal of Economic Growth 4, 305–330.
DiVaio, G., Enflo, K., 2011. Did globalization drive convergence? Identifying crosscountry growth regimes in the long-run. European Economic Review 55,
832–844.
Dollar, D., Kraay, A., 2003. Institutions, trade, and growth. Journal of Monetary Economics 50, 133–162.
Durlauf, S., Johnson, P.A., 1995. Multiple regimes and cross-country behavior. Journal of Applied Econometrics 10, 365–384.
Durlauf, S.N., Johnson, P.A., Temple, J.R., 2005. Growth econometrics. In: Aghion, P., Durlauf, S. (Eds.), Handbook of Economic Growth. Elsevier, pp. 555–678.
Easterly, W., Levine, R., 2003. Tropics, germs and crops: how endowments influence economic development? Journal of Monetary Economics 50, 3–39.
Eicher, T., García-Peñalosa, C., Teksoz, U., 2006. How do institutions lead some countries to produce so much more output per worker than others? In:
Eicher, T., García-Peñalosa, C. (Eds.), Institutions, Development and Economic Growth. MIT Press, pp. 178–220.
Eicher, T., García-Peñalosa, C., Van Ypersele, T., 2009. Education, corruption and the distribution of income. Journal of Economic Growth 14, 205–231.
Eicher, T., Leukert, A., 2009. Institutions and economic performance: endogeneity and parameter heterogeneity. Journal of Money, Credit and Banking 41,
197–219.
Eicher, T., Roehn, O., Papageorgiou, C., 2007. Unraveling the fortunes of the fortunate: an iterative bayesian model averaging (IBMA) approach. Journal of
Macroeconomics 29, 494–514.
Frühwirth-Schnatter, S., 2006. Finite Mixture of Markov Switching Models. Spring-Verlag Series in Statistics. Springer-Nerlag, New York.
Galor, O., 2005. From stagnation to growth: unified growth theory. In: Aghion, P., Durlauf, S. (Eds.), Handbook of Economic Growth. Elsevier, pp. 171–293.
Giavazzi, F., Tabellini, G., 2005. Economic and political liberalizations. Journal of Monetary Economics 52, 1297–1330.
21
There are other possible mechanisms that prevent low quality institutions from resulting in low growth. Notably Roland and Gorodnichenko (2011) show
that certain cultural traits, such as individualism, may offset the impact of bad institutions.
Glaeser, E., La Porta, R., Lopez-de-Silanes, F., Shleifer, A., 2004. Do institutions cause growth? Journal of Economic Growth 9, 271–303.
Glaeser, E., Ponzetto, G., Shleifer, A., 2007. Why does democracy need education? Journal of Economic Growth 12, 77–99.
Gwartney, J., Lawson, R., 2003. The concept and measurement of economic freedom. European Journal of Political Economy 19, 405–430.
Hall, R., Jones, C., 1999. Why do some countries produce so much more output than others? Quarterly Journal of Economics 114, 83–116.
Hurvich, C., Tsai, C., 1989. Regression and time series model selection in small samples. Biometrika 76 (2), 297–307.
Huynh, K.P., Jacho-Chávez, D.T., 2009. Growth and governance: a nonparametric analysis. Journal of Comparative Economics 37, 121–143.
Jones, B., Olken, B., 2005. Do leaders matter? National leadership and growth since World War II. Quarterly Journal of Economics 120, 835–864.
Knack, S., Keefer, P., 1995. Institutions and economic performance: cross-country tests using alternative measures. Economics and Politics 7, 207–227.
Kourtellos, A., Stengos, T., Tan, C.M., 2010. Do institutions rule? The role of handerogeneity in the institutions vs. geography debate. Economics Bullatin 30,
1710–1719.
Larsson, A., Parente, S., 2011. Democracy as a middle ground: a unified theory of development and political regimes. mimeo.
Lipset, S., 1960. Political Man: The Social Basis of Modern Politics. Doubleday, New York.
McLachlan, G.J., Peel, D., 2000. Finite Mixture Models. Wiley, New York.
Nannicini, T., Ricciuti, R., 2010. Autocratic transitions and growth. CESifo Working Paper No. 2967.
North, D., 1981. Structure and Change in Economic History. Norton and Co., New York.
Owen, A.L., Videras, J., Davis, L., 2009. Do all countries follow the same growth process? Journal of Economic Growth 14, 265–286.
Paap, C., 2002. Trade as a threshold variable for multiple regimes. Economics Letters 77, 85–91.
Persson, T., 2004. Consequences of constitutions. Journal of the European Economic Association 2, 139–161.
Persson, T., Tabellini, G., 2006. Democracy and development: the devil in the details. American Economic Review 96, 319–324.
Persson, T., Tabellini, G., 2008. The growth effects of democracy: is it heterogeneous and how can it be estimated? In: Helpman, E. (Ed.), Institutions and
Economic Performance. Harvard University Press.
Przeworski, A., Alvarez, M.E., Cheibub, J., Limongi, F., 2000. Democracy and Development. Cambridge University Press: Press Syndicate of the University of
Cambridge.
Rodrik, D., Wacziarg, R., 2005. Do democratic transitions produce bad economic outcomes? American Economic Review Papers and Proceedings 95, 50–56.
Roland, G., Gorodnichenko, Y., 2011. Which dimensions of culture matter for long run growth? American Economic Review: Papers and Proceedings 101,
492–498.
Schwarz, G., 1978. Estimating the dimension of a model. Annals of Statistics 6, 461–464.
Sturm, J.-E., De Haan, J., 2005. Determinants of long-term growth: new results applying robust estimation and extreme bounds analysis. Empirical
Economics 30, 597–617.
Sugiura, N., 1978. Further analysis of the data by Akaike’s information criterion and the finite corrections. Communications in Statistics, Theory and
Methods 7, 13–26.
Temple, J.R., 2001. Generalizations that aren’t? Evidence on education and growth. European Economic Review 45, 905–918.

Flachaire Et Al. (2014) - Political Versus Economic Institutions in The Growth Process

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Flachaire Et Al. (2014) - Political Versus Economic Institutions in The Growth Process

Uploaded by

Copyright:

Available Formats

Journal of Comparative Economics 42 (2014) 212–229

Contents lists available at SciVerse ScienceDirect

Journal of Comparative Economics

Political versus economic institutions in the growth process

2. Institutions in the growth process

growth ¼ d0 þ d1 logðgdp0 Þ þ d2 logðpopÞ þ d3 logðinvÞ þ d4 logðeduc0 Þ þ d5 eco0 þ d6 dem0 þ e: ð1Þ

3.1. Description of the data

Variable Obs. Mean SD Min Max Description Data source

Note: Decomposition into between-country and within-country components.

3.2. Standard regression models

Variable Pooled-OLS Fixed-effects Random-effects IV-Random-effects

4.1. Econometric speciﬁcation

Group1 : y ¼ xb1 þ e1 ; e1 Nð0; r21 Þ;

Mixture 1 Mixture 2 Mixture 3 Mixture 4 Statistic p-value

E. Flachaire et al. / Journal of Comparative Economics 42 (2014) 212–229

BIC ¼ 2‘^ þ ð#paramÞ log n; ð5Þ

4.2. Empirical results

4.3. Regime membership

Variable Mixture 1 Mixture 2 Mixture 3 Mixture 4

5.1. Alternative measures of institutions

Mixture 1 Mixture 2 Mixture 3 Mixture 4 Mixture 5 Mixture 6

Variable Mixture 1 Mixture 2 Mixture 3 Mixture 4

Variable [1] [2]

5.2. The determinants of group membership

You might also like