Political development and economic performance in the last 200 years

Abstract

The aim of the paper is to verify whether there has been a causal relationship between economic performance and the quality of political environment in the last 200 years. Mainly, the paper explores the bi-directorial causality for the period of 1821–2016. To attain the aim, the paper uses Granger causality test. The differences between the individual regions (Europe, Latin America and former British colonies) are taken into consideration. Economic performance is expressed as annual growth rate of GDP per capita (taken from Maddison Project Database); the quality of political environment is associated with the Electoral Democracy Index and the Liberal Democracy Index (from the V-Dem Project). The paper offers three findings. Firstly, the results indicate that a statistically significant relationship between economic performance and political development was identified for the researched period. Secondly, bi-directorial causality was peculiar to the European countries, whereas the linkage was not identified within other regions. Thirdly, the results for the sub-periods confirm the previous conclusions with two additions. The quality of political environment and economic performance did not interact with each other in the period of 1821–1870 across all three regions, while in the period after World War II, bi-directorial causal relationship could also exist in the Latin American economies.