Political institutions as substitute for democracy: a political economy analysis of economic growth

This manuscript empirically assesses the effects of political institutions on economic growth. It analyzes how political institutions affect economic growth in different stages of democratization and economic development by means of dynamic panel estimation with interaction terms. The new empirical results obtained show that political institutions work as a substitute for democracy promoting economic growth. In other words, political institutions are important for increasing economic growth, mainly when democracy is not consolidated. Moreover, political institutions are extremely relevant to economic outcomes in periods of transition to democracy and in poor countries with high ethnical fractionalization.

Optimal IV estimation of systems with stochastic regressors and var disturbances with applications to dynamic systems

This paper considers the general problem of Feasible Generalized Least Squares Instrumental Variables (FG LS IV) estimation using optimal instruments. First we summarize the sufficient conditions for the FG LS IV estimator to be asymptotic ally equivalent to an optimal G LS IV estimator. Then we specialize to stationary dynamic systems with stationary VAR errors, and use the sufficient conditions to derive new moment conditions for these models. These moment conditions produce useful IVs from the lagged endogenous variables, despite the correlation between errors and endogenous variables. This use of the information contained in the lagged endogenous variables expands the class of IV estimators under consideration and there by potentially improves both asymptotic and small-sample efficiency of the optimal IV estimator in the class. Some Monte Carlo experiments compare the new methods with those of Hatanaka [1976]. For the DG P used in the Monte Carlo experiments, asymptotic efficiency is strictly improved by the new IVs, and experimental small-sample efficiency is improved as well.