Politics and Productivity


  • Peter G. Klein,

    1. Senior Fellow, Contracting and Organizations Research Institute, and Assistant Professor, Department of Agricultural Economics, University of Missouri, Columbia, MO 65203. Phone 1–573–882–7008, Fax 1–573–882–3958, E-mail pklein@missouri.edu
    Search for more papers by this author
  • Hung Luu

    1. Analyst, Debt Capital Markets, Merrill Lynch Capital Markets Bank Ltd., 60311 Frankfurt, Germany. Phone 49–69–5899–5510, Fax 49–69–5899–4007, E-mail hung_luu@ml.com
    Search for more papers by this author
    • *

      We thank James Gwartney, Witold Henisz, Randall Holcombe, Robert Lawson, Knox Lovell, David Robinson, Dexter Samida, Chris Westley, and an anonymous referee for helpful comments; Kathrin Zoeller for research assistance; and Witold Henisz for supplying data. Klein thanks the University of Georgia Research Foundation for financial support.


We use a stochastic frontier approach to study the effects of political and regulatory institutions on aggregate productivity in 39 countries from 1975 to 1990. We show that technical efficiency is positively related to policies supporting laissez-faire and political structures that promote policy stability. Moreover, models of technical efficiency incorporating both measures perform better than models including only one or the other. This suggests that economic performance depends not only on current policies but also on the confidence of market participants and outside investors that these policies will remain in place.