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The Political Economy of Growth: Democracy and Human Capital

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  • Matthew A. Baum
  • David A. Lake

Abstract

Democracy is more than just another brake or booster for the economy. We argue that there are significant indirect effects of democracy on growth through public health and education. Where economists use life expectancy and education as proxies for human capital, we expect democracy will be an important determinant of the level of public services manifested in these indicators. In addition to whatever direct effect democracy may have on growth, we predict an important indirect effect through public policies that condition the level of human capital in different societies. We conduct statistical investigations into the direct and indirect effects of democracy on growth using a data set consisting of a 30‐year panel of 128 countries. We find that democracy has no statistically significant direct effect on growth. Rather, we discover that the effect of democracy is largely indirect through increased life expectancy in poor countries and increased secondary education in nonpoor countries.

Suggested Citation

  • Matthew A. Baum & David A. Lake, 2003. "The Political Economy of Growth: Democracy and Human Capital," American Journal of Political Science, John Wiley & Sons, vol. 47(2), pages 333-347, April.
    • Handle: RePEc:wly:amposc:v:47:y:2003:i:2:p:333-347
    DOI: 10.1111/1540-5907.00023
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    References listed on IDEAS

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    1. Martin C. McGuire & Mancur Olson, 1998. "The Economics of Autocracy and Majority Rule: The Invisible Hand and the Use of Force," International Economic Association Series, in: Silvio Borner & Martin Paldam (ed.), The Political Dimension of Economic Growth, chapter 3, pages 38-73, Palgrave Macmillan.
    2. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    3. Reiter, Dan & Stam, Allan C., 1998. "Democracy, War Initiation, and Victory," American Political Science Review, Cambridge University Press, vol. 92(2), pages 377-389, June.
    4. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
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