ABSTRACT

While political scientists have a long history of studying the various effects of political power arrangements, economists have recently dedicated increasing attention to the impacts of political institutions and issues of governance quality.1 The burgeoning literature has reached a broad consensus that economic performance is not always driven by economic factors alone; it is often shaped by the political and institutional environment in which economic activities take place. It is through the political process that conflicting interests ultimately are aggregated into public-policy decisions that, in turn, shape the incentives of key economic actors in society. Therefore, political institutions ultimately have a fundamental impact on economic performance. In other words, political institutions and governance matter.