Does winning big enhance economic performance? An empirical evidence.

Abstract

This paper investigates the causal effect of political capital on economic growth, using panel data regression of a dataset consisting of up to 174 countries between the period of 1965 and 2015. The results suggest that political capital has a positive effect on economic growth. With a high political capital, politicians are entrusted with more discretion to implement policies which may be unpopular but growth-enhancing. These results withstand an array of extensions and robustness checks. This study also shows that the effect of political capital on economic growth is amplified for countries with high trade openness, as a country requires both political capital and external integration to achieve greater economic performance.