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Machine Learning Indices, Political Institutions, and Economic Development

Author

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  • Klaus Gründler
  • Tommy Krieger

Abstract

We present a new aggregation method - called SVM algorithm - and use this technique to produce novel measures of democracy (186 countries, 1960-2014). The method takes its name from a machine learning technique for pattern recognition and has three notable features: it makes functional assumptions unnecessary, it accounts for measurement uncertainty, and it creates continuous and dichotomous indices. We use the SVM indices to investigate the effect of democratic institutions on economic development, and find that democracies grow faster than autocracies. Furthermore, we illustrate how the estimation results are affected by conceptual and methodological changes in the measure of democracy. In particular, we show that instrumental variables cannot compensate for measurement errors produced by conventional aggregation methods, and explain why this failure leads to an overestimation of regression coefficients.

Suggested Citation

  • Klaus Gründler & Tommy Krieger, 2018. "Machine Learning Indices, Political Institutions, and Economic Development," CESifo Working Paper Series 6930, CESifo.
  • Handle: RePEc:ces:ceswps:_6930
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    References listed on IDEAS

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    1. Torsten Persson & Guido Tabellini, 2006. "Democracy and Development: The Devil in the Details," American Economic Review, American Economic Association, vol. 96(2), pages 319-324, May.
    2. Richard Bluhm & Martin Gassebner & Sarah Langlotz & Paul Schaudt, 2021. "Fueling conflict? (De)escalation and bilateral aid," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(2), pages 244-261, March.
    3. Toke S. Aidt & Raphaël Franck, 2015. "Democratization Under the Threat of Revolution: Evidence From the Great Reform Act of 1832," Econometrica, Econometric Society, vol. 83, pages 505-547, March.
    4. Paul J. Burke & Andrew Leigh, 2010. "Do Output Contractions Trigger Democratic Change?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 124-157, October.
    5. Rode, Martin & Gwartney, James D., 2012. "Does democratization facilitate economic liberalization?," European Journal of Political Economy, Elsevier, vol. 28(4), pages 607-619.
    6. Philippe Aghion & Steven Durlauf (ed.), 2005. "Handbook of Economic Growth," Handbook of Economic Growth, Elsevier, edition 1, volume 1, number 1.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Klaus Gründler & Niklas Potrafke & Timo Wochner, 2020. "Structural Reforms and Income Inequality: Who Benefits From Market-Oriented Reforms?," EconPol Policy Reports 18, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Johannes Blum & Florian Dorn & Axel Heuer, 2021. "Political institutions and health expenditure," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(2), pages 323-363, April.
    3. Gründler, Klaus & Potrafke, Niklas, 2019. "Corruption and economic growth: New empirical evidence," European Journal of Political Economy, Elsevier, vol. 60(C).
    4. Klaus Gründler & Niklas Potrafke & Timo Wochner, 2019. "Korruption und Wirtschaftswachstum," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(18), pages 27-33, September.
    5. Martin Mosler, 2020. "Autocrats in the United Nations General Assembly: A Test of the Decoy Voting Hypothesis," ifo Working Paper Series 340, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    6. Colagrossi, Marco & Rossignoli, Domenico & Maggioni, Mario A., 2020. "Does democracy cause growth? A meta-analysis (of 2000 regressions)," European Journal of Political Economy, Elsevier, vol. 61(C).
    7. Johannes Blum, 2019. "Arms Production, National Defense Spending and Arms Trade: Examining Supply and Demand," ifo Working Paper Series 310, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    8. Johannes Blum, 2019. "Angebot und Nachfrage auf dem Rüstungsmarkt – Evidenz auf Basis von Unternehmensdaten aus der Rüstungsindustrie," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(18), pages 34-37, September.
    9. Moamen Gouda & Jerg Gutmann, 2021. "Islamic constitutions and religious minorities," Public Choice, Springer, vol. 186(3), pages 243-265, March.
    10. Johannes Blum, 2020. "Democracy’s Third Wave and National Defense Spending," ifo Working Paper Series 339, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    11. Mosler, Martin, 2021. "Autocrats in the United Nations General Assembly: A test of the decoy voting hypothesis," European Journal of Political Economy, Elsevier, vol. 67(C).
    12. Blum, Johannes, 2019. "Arms production, national defense spending and arms trade: Examining supply and demand," European Journal of Political Economy, Elsevier, vol. 60(C).
    13. Nikolova, Elena & Polansky, Jakub, 2020. "Conversionary Protestants do not cause democracy," GLO Discussion Paper Series 480, Global Labor Organization (GLO).

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    More about this item

    Keywords

    democracy; development; economic growth; estimation bias; indices; institutions; machine learning; support vector machines;
    All these keywords.

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • N40 - Economic History - - Government, War, Law, International Relations, and Regulation - - - General, International, or Comparative
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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