Path to Prosperity: The Dynamics of Freedom and Economic Development

Yi Feng, Jacek Kugler, Siddharth Swaminathan and Paul J. Zak

International Interactions, 2008, vol. 34, issue 4, 423-441

Abstract: We present a dynamic general equilibrium model that formalizes the political mechanisms that prompt demographic change and augment economic development. We demonstrate that in addition to well-established economic determinants, fertility decisions, human capital accumulation and economic development are altered by three fundamental political variables: political freedom, political stability, and political capacity. Using the model, we derive a set of conditions that enable poor nations to escape poverty traps. The formal deductions are supported by empirical analysis utilizing a panel of 108 countries from 1960 to 2004. Our findings demonstrate that political change triggers a demographic transition that catapults nations onto the path of sustained economic growth. Our results show that developing nations with capable, free, and stable political systems can substantially close the economic gap that divides rich nations from poor nations within a generation.

Date: 2008
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DOI: 10.1080/03050620802561488

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