Party Strength and Economic Growth

Abstract

This study argues that strong parties play a critical role in fostering economic development. The theory explores how parties broaden the constituencies to which policy makers respond and help politicians to solve coordination problems. These features ensure that politicians engage in better economic management, provide productivity enhancing public services, and help ensure political (and thus policy) stability. This, in turn, should enhance economic growth. Drawing on a novel measure of party strength from the Varieties of Democracy dataset, we test this hypothesis on data from more than 150 countries, with time series extending from 1900 to 2012. We identify a sizeable and highly significant effect, and one that is robust to a variety of specifications, estimators, and samples. The effect operates in both democracies and autocracies and is fairly stable across various regions of the world and across time periods. We also provide suggestive evidence about causal mechanisms, focusing on measures of economic management, public goods, and political stability. This paper contributes to two large literatures, respectively focusing on features of political parties and on the institutional determinants of growth. While previous studies have highlighted the role of parties in improving the quality of governance such claims are usually limited in context – to democratic or authoritarian settings – and generally do not pertain to distal outcomes such as per capita GDP growth. Studies of economic development, while focused explicitly on growth, generally identify other long-run causal factors at work, e.g., geography, property rights, political constraints, colonial origins, inequality, social capital, or human capital.