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

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  • Oliva, Maria-Angels
  • Rivera-Batiz, Luis A

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 association between other types of capital flows and growth. Copyright 2002 by Blackwell Publishing Ltd

Suggested Citation

  • Oliva, Maria-Angels & Rivera-Batiz, Luis A, 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:248-62
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    Cited by:

    1. Dr. Nihal Bayraktar, 2015. "Importance of Investment Climates for Inflows of Foreign Direct Investment in Developing Countries," Business and Economic Research, Macrothink Institute, vol. 5(1), pages 24-50, June.
    2. Mathevet, Laurent & Steiner, Jakub, 2013. "Tractable dynamic global games and applications," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2583-2619.
    3. Nihal Bayraktar, 2013. "Foreign Direct investment and Investment Climate," EcoMod2013 5294, EcoMod.
    4. Juan Pi??eiro Chousa, & Krishna Chaitanya, & Bitzenis P. Aristidis & Artur Tamazian, 2008. "Determinants Of Barries To Quality Of Direct Foreign Investments ??? Evidences From South & East Asian Economies," William Davidson Institute Working Papers Series wp910, William Davidson Institute at the University of Michigan.
    5. Kolstad, Ivar & Villanger, Espen, 2008. "Determinants of foreign direct investment in services," European Journal of Political Economy, Elsevier, vol. 24(2), pages 518-533, June.
    6. repec:spr:portec:v:16:y:2017:i:3:d:10.1007_s10258-017-0136-y is not listed on IDEAS
    7. Elizabeth Asiedu, 2006. "Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability," The World Economy, Wiley Blackwell, vol. 29(1), pages 63-77, January.
    8. Tebaldi, Edinaldo & Elmslie, Bruce, 2008. "Do Institutions Impact Innovation?," MPRA Paper 8757, University Library of Munich, Germany.
    9. repec:spr:soinre:v:134:y:2017:i:3:d:10.1007_s11205-016-1466-3 is not listed on IDEAS

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