INSTITUTIONS AND POLITICS IN A LEWIS-TYPE GROWTH MODEL

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Abstract

The paper examines the impact of politics and institutions on growth in the light of Lewis's writings. The basic approach adopted is that the accumulation of ‘capitalist surplus’ can be threatened for political reasons. If the oppressed are likely to rebel against poor living standards associated with economic development with unlimited supplies of labour, it is sensible for governments to invest in political and institutional devices which will prevent the threat of such disturbances. We call such investments a ‘social efficiency wage premium’ and find that growth, across a sample of 58 countries for the period between 1980 and 2001, is significantly associated with the measures a country takes to reduce its political vulnerability. The paper concludes that investments of a country's surplus in measures to reduce political vulnerability are well warranted.

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