Explaining economic growth in advanced capitalist democracies: varieties of capitalism and welfare production regimes

Abstract

Why do some advanced capitalist democracies experience relatively higher economic growth rates? In this paper, it is argued that complementarities between varieties of coordination and systems of social protection can help explain differences in long-run economic performance. Testing the explanatory power of the original varieties of capitalism (VoC) model and the welfare production regime (WPR) model, the article finds that long-run economic growth is conditioned by the extent to which systems of social protection are complementary to varieties of coordination. Using time-series cross-section data on 17 OECD countries from 1974 to 2009, the article finds strong support for the hypothesis that coordinated market economies with decommodified welfare states achieve relatively higher economic growth rates in the long run. The WPR model moreover seems better at explaining economic growth compared with the classical VoC model. The welfare state is therefore argued to be crucial in understanding the economic effects of varieties of coordination.