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Endogenous Constitutional Democracy Capital and Economic Development

Author

Listed:
  • Wei Liang

    (China Economics and Management Academy, Central University of Finance and Economics)

  • Heng-fu Zou

    (The World Bank)

Abstract

This paper develops a dynamic representative-citizens model that endogenizes the accumulation of both constitutional democracy capital and physical capital. Drawing from Douglass North's seminal works, our model integrates interactions between institutional capital and economic performance, focusing on how changes in institutional frameworks impact economic dynamics. By exploring the reciprocal relationships between democratic institutions and economic variables over time, the model elucidates how democratic structures facilitate economic growth and how economic conditions affect the vitality of democratic governance. It demonstrates that exogenous economic variables significantly influence both democracy and physical capital, while political institutional factors critically shape economic outcomes. This approach highlights the importance of a supportive democratic environment in enhancing capital accumulation and shows how threats to democracy can hinder both democratic integrity and economic development, providing a comprehensive framework to understand the interplay between political systems and economic performance.

Suggested Citation

  • Wei Liang & Heng-fu Zou, 2024. "Endogenous Constitutional Democracy Capital and Economic Development," Annals of Economics and Finance, Society for AEF, vol. 25(2), pages 501-549, November.
    • Handle: RePEc:cuf:journl:y:2024:v:25:i:2:liangzou
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    Citations

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    Cited by:

    1. Heng-fu Zou, 2025. "Institution-Based Asset Pricing: A Generalization of Consumption- and Production-Based Models," CEMA Working Papers 765, China Economics and Management Academy, Central University of Finance and Economics.
    2. Heng-Fu Zou, 2025. "Liberal Ideas and the Great Enrichment: A Theoretical Model," Annals of Economics and Finance, Society for AEF, vol. 26(1), pages 1-175, May.
    3. Qixin Zhan & Junzhu Zhao & Heng-Fu Zou, 2025. "The Rule-of-Law Capital,Growth, and Development," Annals of Economics and Finance, Society for AEF, vol. 26(2), pages 667-705, November.
    4. Qixin Zhan & Heng-Fu Zou, 2025. "The Right to Bear Arms, Private Property, and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 26(1), pages 281-309, May.
    5. Heng-fu Zou, 2025. "Institutional Volatility and the Equity Premium Puzzle: A Dynamic Asset Pricing Framework for OECD Economies," CEMA Working Papers 775, China Economics and Management Academy, Central University of Finance and Economics.

    More about this item

    Keywords

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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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