The Constitution of Economic Growth: Testing the Prosperity Effects of Property Rights and Veto Players on a Panel of Countries 1980-2000

Abstract

Political scientists and economists increasingly agree that institutions may influence economic growth, but there is little general agreement on what institutions tend to produce what consequences. We apply public choice insights for a theoretical analysis that may be termed “Madisonian”: Institutions that divide political power between multiple veto players and institutions that protect private property rights may be expected to have positive effects on economic growth. We analyze data from a panel of countries for the period 1980‐2000 in order to study the relationships, including a series of “extreme bounds” analyses in order to test the robustnessof the statistical results. We find that particularly the presence of secure private property has a significant, positive and robust effect on economic growth and that when outliers are excluded a configuration where political power is dispersed among more veto players has a similar effect.