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

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  • Maria‐Angels Oliva
  • Luis A. Rivera‐Batiz

Abstract

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

Suggested Citation

  • Maria‐Angels Oliva & Luis A. Rivera‐Batiz, 2002. "Political Institutions, Capital Flows, and Developing Country Growth: An Empirical Investigation," Review of Development Economics, Wiley Blackwell, vol. 6(2), pages 248-262, June.
    • Handle: RePEc:bla:rdevec:v:6:y:2002:i:2:p:248-262
    DOI: 10.1111/1467-9361.00152
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    Cited by:

    1. Angelica E. Njuguna & Emmanuel Nnadozie, 2022. "Investment Climate and Foreign Direct Investment in Africa: The Role of Ease of Doing Business," Journal of African Trade, Springer, vol. 9(1), pages 23-46, December.

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    JEL classification:

    • F00 - International Economics - - General - - - General

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