The Democracy-Growth nexus : A Smoothed GMM Linear Index Threshold Model Approach

This paper investigates the relationship between democracy and economic growth in the context of a linear index threshold regression model. We rst introduce the baseline model with endogeneity and propose a two-step smoothed GMM estimation method. We show the consistency and derive the asymptotic distributions of the proposed estimators. We then extend the proposed approach to the dynamic panel context. Monte Carlo simulations are used to assess the finite sample performance of our proposed estimators. Finally, we present the estimation results of a nonlinear effect of democratization on economic growth, establishing a non-monotonic relationship