Political Instability, Freedom, and Economic Growth: Some Further Evidence

Abstract

Over time, the impact of both political and institutional factors on the rate of economic growth has received a lot of attention in the economic literature. Since Adam Smith (if not before) it has been observed that economic performance depends in part on political and institutional factors. Unfortunately, attempts to discover how and under what conditions such factors impinge on economic performance often did not progress beyond anecdote.1 It is only recently that more systematic attempts were undertaken to analyze the importance of political and institutional factors in explaining cross-country variances in economic growth. For instance, many researchers have examined whether the democratic character of national political procedures and institutions can help explain cross-country differences in national development. L. Sirowy and A. Inkeles reviewed 13 studies, all of which attempted to evaluate the economic consequences of variation in the democratic character of national political regimes. Sirowy and Inkeles conclude that the studies they considered present a very mixed and confusing picture with regard to the effect of democracy on economic growth.2 The relationship between civil and political liberty, on the one hand, and economic growth, on the other, has also been the subject of much discussion. Two conflicting hypotheses have been advanced concerning the connection between economic growth and political freedom. Some economists argue that freedom fosters economic performance and hence economic growth; others pose that high growth rates require economic controls and reduced freedom. Four recent cross-section studies on economic growth have found evidence that lack of civil and political liberties is negatively correlated with economic growth.3 All of these studies used R. D. Gastil's measures of civil liberties or political rights.4 G. W. Scully concludes that, for the