Social, Political, and Institutional Determinants of Investment and Economic Growth: A Cross-Country Study

Abstract

Investment and economic growth are affected by many factors such as physical and human capital, geography, social, and political factors. The aim of this paper is to study how social, political and institutional factors affect investment and economic growth. Specifically, this thesis aims to study the relationship between socio-political indicators such as law and order, democratic accountability, ethnic tension, government stability, and corruption in government and economic indicators like the investment, GDP and growth rate. The analysis of the impact of socio-political indicators on the investment provides a mechanism through which these affect the GDP and hence the growth rate. Employing multivariate regression on panel data with a cross-section of 141 countries over a period of 24 years ranging from 1984 to 2007, the study finds that the institutional indicators such as law and order, democratic accountability and government stability have positive relationship with growth while indicators like ethnic tension and corruption affect growth negatively, although the effect of ethnic tension and corruption are not robust in some specifications.