Political Variables in Growth Regressions

Abstract

In a study for the World Bank, Stone, Levy and Paredes (1992) tried to discover the main obstacles to private business development in Brazil and Chile. The research was based on interviews with forty-two clothing firms of different sizes in each country. The entrepreneurs were confronted with a list of twenty possible problems about doing business, and they were asked to assign the relative importance to each of these areas. The list included most major problems, ranging from inflation and high taxes to political uncertainty and lack of access to credit. As different as the results for the two countries were, there was one area of clear agreement: in both countries the entrepreneurs considered political and policy uncertainty a very serious problem for doing business. In Brazil, it was cited as the most important and in Chile as the second most important of the twenty obstacles to private-sector development.

This paper provides a focused summary of Politics and Economic Growth: What Can We Learn from Cross-Country Data (OECD, 1997a). The research was carried out during a stay as a visiting scholar at the Department of Economics, Harvard University. I thank Alberto Alesina, for inviting me, as well as the OECD Development Centre and the Swiss National Foundation for financial support.