Hostname: page-component-78c5997874-t5tsf Total loading time: 0 Render date: 2024-11-05T15:46:48.540Z Has data issue: false hasContentIssue false
  • English
  • Français

Economic Growth and Democracy in Africa: Revisiting the Feldstein-Horioka Puzzle

Published online by Cambridge University Press:  12 November 2006

Emizet F. Kisangani
Emizet F. Kisangani
Affiliation:
Kansas State University
Get access Rights & Permissions [Opens in a new window]

Abstract

Abstract. The debate on the relationship between economic performance (sustained economic growth, saving and investment) and democracy remains unsettled. This article provides a critical review of the arguments by relying on the Feldstein-Horioka puzzle. A generalized method of moments (GMM) using 37 African countries from 1960 to 1998 reveals a close relationship among indicators of economic performance but no relationship between economic performance and democracy. Co-integration and vector error correction models contradict GMM results, however. Democracy fosters investment in eight countries, enhances saving in three other countries and sustains economic growth in five. Therefore, single country analyses using appropriate methodologies seem warranted to avoid putting forth ecological fallacies with detrimental policy implications.

Résumé. Le débat sur la relation entre performance économique (croissance économique soutenue, épargne et investissement) et démocratie est encore loin d'être clos. Cet article fait une analyse critique des thèses en présence en se basant sur le paradoxe de Feldtsein-Horioka. L'analyse de 37 pays africains de 1960 à 1998 utilisant la méthode des moments généralisée (MMG) démontre un lien étroit entre les divers indicateurs de performance économique, mais aucun lien entre ceux-ci et la démocratie. Cependant, la cointégration et les modèles vectoriels à correction d'erreurs contredisent les résultats basés sur la MMG. En effet, la démocratie favorise l'investissement dans huit pays, encourage l'épargne dans trois autres pays, et soutient la croissance économique dans cinq pays. Il semble justifié, par conséquent, de recourir à des analyses individuelles par pays utilisant des méthodologies appropriées pour éviter des erreurs écologiques aux répercussions néfastes sur la politique économique.

Type
Research Article
Information
Canadian Journal of Political Science/Revue canadienne de science politique , Volume 39 , Issue 4 , December 2006 , pp. 855 - 881
Copyright
© 2006 Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Anoruo, Emmanuel. 2001. “Saving-Investment Connection: Evidence from the Asian Countries.” The American Economist 45: 46–53.CrossRefGoogle Scholar
Appadurai, Arjun. 1996. Modernity at Large: Cultural Dimensions of Globalization. Minneapolis: University of Minnesota Press.
Arellano, Manuel and Stephen Bond. 1991. “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment.” Review of Economic Studies 58: 277–297.CrossRefGoogle Scholar
Argimon, Isabel and José M. Roldan. 1994. “Saving, Investment and International Capital Mobility in EC Countries.” European Economic Review 38: 59–67.Google Scholar
Arrow, Kenneth. 1974. The Limits of Organization. New York: Norton.
Attanasio, Orazio O., Lucio Picci and Antonello E. Scorcu. 2000. “Saving, growth, and Investment: A Macroeconomic Analysis Using a Panel of Countries.” The Review of Economics and Statistics 82: 182–211.CrossRefGoogle Scholar
Barkoulas, John, Alpay Filizetkin and Robert Murphy. 1996. “Time Series Evidence on the Saving-Investment Relationship.” Applied Economics Letters 3: 77–80.CrossRefGoogle Scholar
Barro, Robert J. 1991. “Economic Growth in a Cross Section of Countries.” Quarterly Journal of Economics 106: 407–44.Google Scholar
Barro, Robert J. and Jong-Wha Lee. 1993. “International Comparisons of Educational Attainment.” Journal of Monetary Economics 32: 363–394.CrossRefGoogle Scholar
Bhattacharya, Amar, Peter J. Montiel and Sunil Sharma. 1997. “How Can Sub-Saharan Africa Attract More Private Capital Inflows?” Finance & Development 34(2): 3–6.Google Scholar
Boswijk, Peter and Philip H. Franses. 1992. “Dynamic Specification and Co-integration.” Oxford Bulletin of Economics and Statistics 54: 369–381.CrossRefGoogle Scholar
Brun, Jean-François. 1999. “How Instability Lowers African Growth.” Journal of African Economies 8: 87–107.CrossRefGoogle Scholar
Brunett, Aymo. 1997. “Political Variables in Cross-Country Growth Analysis.” Journal of Economic Surveys 11: 163–90.CrossRefGoogle Scholar
Carroll, Christopher D. and David N. Weil. 1994. “Saving and Growth: A Reinterpretation.” Carnegie-Rochester Conference Series on Public Policy 40: 133–92.CrossRefGoogle Scholar
Chandler, Alfred D. 1990. Scale and Scope: The Dynamics of Industrial Capitalism. Cambridge: Harvard University Press.
Coakley, Jeffrey, Farida Kulasi and Ron Smith. 1996. “Current Account Solvency and the Feldstein-Horioka Puzzle.” The Economic Journal 106: 620–627.Google Scholar
Cole, Harold L., George J. Mailath and Andrew Postlewaite. 1992. “Social Norms, Savings Behavior, and Growth.” Journal of Political Economy 100: 1092–1125.CrossRefGoogle Scholar
Collier, Paul and Jan W. Gunning. 1999. “Explaining African Economic Performance.” Journal of Economic Literature 37: 64–111.CrossRefGoogle Scholar
De Mesquita, Bruno B., James D. Morrow, Randolph Siverson and Alastair Smith. 2001. “Political Competition and Economic Growth.” Journal of Democracy 12: 58–72.CrossRefGoogle Scholar
Dickey, David A. and Wayne A. Fuller. 1981. “The Likelihood Ratio Statistics for Autoregressive Time Series with Unit Root.” Econometrica 49: 1057–1072.CrossRefGoogle Scholar
Dooley, Michael, Jeffrey Frankel and Donald J. Mathieson. 1987. “International Capital Mobility in Developing Countries versus Industrialized Countries: What Do Savings-Investment Correlations Tell Us?” IMF Staff Papers 34: 503–529.Google Scholar
Easterly, William and Ross Levine. 1997. “Africa's Growth Tragedy: Policies and Ethnic Divisions.” Quarterly Journal of Economics 112: 1203–1250.CrossRefGoogle Scholar
The Economist. 2004. “How to Make Africa Smile.” January 17: 1–16.
Emizet, Kisangani. 2000. “The Relationship between the Liberal Ethos and Quality of Life: A Comparative Analysis of Pooled Time Series Data.” Comparative Political Studies 33: 1049–1078.CrossRefGoogle Scholar
Engle, Robert F. and Clive W. J. Granger. 1987. “Co-Integration and Error Correction: Representation, Estimation, and Testing.” Econometrica 55: 251–276.CrossRefGoogle Scholar
Feldstein, Martin and Charles Horioka. 1980. “Domestic Saving and International Capital Flows.” Economic Journal 103: 314–329.
Fershtman, Chain and Yoram Weiss. 1993. “Social Status, Culture, and Economic Performance.” Economic Journal 103: 946–956.Google Scholar
Frankel, Jeffrey A. 1992. “Measuring International Capital Mobility: A Review.” American Economic Association Papers and proceedings 82: 1176–1196.Google Scholar
Friedman, Milton. 1962. Capitalism and Freedom. Chicago: University of Chicago Press.
Gasiorowski, Mark J. 2000. “Democracy and Macroeconomic Performance in Underdeveloped Countries: An Empirical Analysis.” Comparative Political Studies 33: 319–349.CrossRefGoogle Scholar
Gastil, Raymond D. 1989. Freedom in the World. Westport: Greenwood.
Gelpi, Christopher. 1997. “Democratic Diversions: Governmental Structure and the Externalization of Domestic Conflict.” Journal of Conflict Resolution 41: 255–272.CrossRefGoogle Scholar
Gordon, Robert J. 2003. Macroeconomics. New York: Addison Wesley.
Granger, Clive W.J. 1969. “Investigating Causal Relations by Econometric Models and Cross-Spectral Methods.” Econometrica 37: 424–438.CrossRefGoogle Scholar
Green, Donald P., Soo Y. Kim and David H. Yoo. 2001. “Dirty Pool.” International Organization 55: 441–468.CrossRefGoogle Scholar
Greenaway, David, Wyn Morgan and Peter Wright. 1997. “Trade Liberalization and Growth in Developing Countries: Some New Evidence.” World Development 25: 1885–1892.CrossRefGoogle Scholar
Gyimah-Brempong, Kwabena and Thomas L. Traynor. 1999. “Political Instability, Investment And Economic Growth in Sub-Saharan Africa.” Journal of African Economies 8: 52–86.CrossRefGoogle Scholar
Harberger, Arnold C. 1980. “Vignettes on the World Capital Markets.” American Economic Review 70: 331–337.Google Scholar
Heo, Uk and Alexander C. Tan. 2001. “Democracy ad Economic Growth: A causal Analysis.” Comparative Politics 33: 463–4736.CrossRefGoogle Scholar
Hoeffler, Anke. 2002. “The Augmented Solow Model and the African Growth Debate.” Oxford Bulletin of Economics & Statistics 64: 135–158.CrossRef
Jaggers, Keith and Monty Marshall. 2004. “Polity IV Project.” http://www.cidcm.umd.edu/inscr/polity.
Johansen, Soren. 1995. Likelihood-Based Inference and Cointegrated Vector Autoregressive Models. New York: Oxford University Press.
Levine, Ross and David Renelt. 1992. “A Sensitivity Analysis of Cross-Country Growth Regressions.” American Economic Review 82: 942–963.Google Scholar
Mankiw, Gregory N. 2000. Macroeconomics. New York: Worth Publishers.
Mankiw, Gregory N., David Romer and David N. Weil. 1992. “A Contribution to the Empirics of Economic Growth.” Quarterly Journal of Economics 107: 407–437.Google Scholar
Nelson, John. 1987. “Political Development.” In Understanding Political Development, eds. M. Weiner and S. P. Huntington. Boston: Little Brown.
Nelson, Michael A. and Ram D. Singh. 1998. “Democracy, Economic Freedom, Fiscal Policy and Growth in LDCs: A Fresh Look.” Economic Development and Cultural Change 46: 677–696.CrossRefGoogle Scholar
North, Douglas C. 1990. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.
North, Douglas C. and Robert P. Thomas. 1973. The Rise of Western World: A New Economic History. Cambridge: Cambridge University Press.
O'Donnell, Guillermo. 1973. Modernization and Bureaucratic Authoritarianism: Studies in South American Politics. Berkeley: University of California Press.
O'Flaherty, Brendan. 1990. “Why Are There Democracies? A Principal Agent Answer.” Economics and Politics 2: 133–155.CrossRefGoogle Scholar
Olson, Mancur. 1999. Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships. New York: Basic Books.
Papanek, Gustav F. 1973. “Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries.” Journal of Political Economy 81: 121–130.Google Scholar
Pesaran, Hashem M., Yongcheol Shin and Richard J. Smith. 2000. “Structural Analysis of Vector Error Correction Models with Exogenous I(1) Variables.” Journal of Econometrics 97: 293–343.Google Scholar
Przeworski, Adam, Michael Alvarez and Jose A. Cheibub. 2000. Democracy and Development: Political Institutions and Well Being in the World 1950–1990. Cambridge, UK: Cambridge University Press.
Przeworski, Adam and Fernando Limongi. 1993. “Political Regimes and Economic Growth.” Journal of Economic Perspectives 7: 51–69.CrossRefGoogle Scholar
Reynolds, Lloyd G. 1983. “The Spread of Modern Economic Growth, 1850–1950.” Journal of Economic Literature 21: 941–977.Google Scholar
Rueschemeyer, Dietrich, Evelyne H. Stephens and John D. Stephens. 1992. Capitalist Development and Democracy. Cambridge, UK: Polity.
Sachs, Jeffrey. 1981. “The Current Account and Macroeconomic Adjustment in the 1970s.” Brookings Papers in Economic Activity 12: 1089–1092.Google Scholar
Sachs, Jeffrey D. and Andrew M. Warner. 1995. “Natural Resource Abundance and Economic Growth.” NBER Working Paper Series, Working Paper 5398. Cambridge: National Bureau of Economic Research.
Sachs, Jeffrey D. and Andrew M. Warner. 1997. “Sources of Slow Growth in African Economies.” Journal of African Economies 6: 335–376.CrossRefGoogle Scholar
Sen, Amartya. 1999. “Democracy as a Universal Value.” Journal of Democracy 10: 3–17.CrossRefGoogle Scholar
Servén, Luis and Andres Solimano, eds. 1993. Striving for Growth after Adjustment: The Role of Capital Formation. Washington, DC: World Bank.
Sirowy, Larry and Alex Inkeles. 1991. “The Effects of Democracy on Economic Growth and Inequality: A Review.” In On Measuring Democracy: Its Consequences and Concomitants, ed. Alex Inkeles. New Brunswick: Transaction Publishers, 125–156.
Solow, Robert M. 1956. “A Contribution to the Theory of Economic Growth.” Quarterly Journal of Economics 70: 65–94.Google Scholar
Tesar, Ludvik L. 1991. “Saving, Investment and International Capital Flows.” Journal of International Economics 31: 55–78.Google Scholar
van de Walle, Nicolas. 2001. African Economies and the Politics of Permanent Crisis. Cambridge: Cambridge University Press.
von Hayek, Freidrich A. 1944. The Road to Serfdom. London: G. Routledge & Sons.
Wade, Robert. 1990. Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization. Princeton: Princeton University Press.
Weingast, Barry R. 1995. “The Economic Role of Political Institutions: Market Preserving Federalism and Economic Development.” Journal of Law, Economics and Organization 11: 1–31.Google Scholar
World Bank. 2001. World Development Indicators. CD-ROM.