Theory and Evidence on the Political Economy of Growth

Some recent developments in the literature on the political economy of economic growth are considered in this paper. First, limitations of traditional cross-sectional analysis are discussed. Attention is focused on the problems of omitted variables and model uncertainty. Advantages and disadvantages of alternative methods are discussed as well as evidence obtained from the application of panel techniques and time-series analysis. Second, the relationship between initial inequality and subsequent economic growth is reconsidered in the light of the empirical evidence recently produced by contributions that make use of panel models and high-quality data on income distribution. Third, the role of special interest politics is investigated. Other than lobbying, the “common-pool” problem is an instance of main interest in the political economy literature. It predicts that more fragmented governments are associated to lower growth. I test this prediction on a panel of western European countries. Results appear to be consistent with the theoretical argument.