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This paper received first place in the Term Paper Contest at the 2005 annual conference of the Minnesota Economic Association held recently at the University of St. Thomas in St. Paul, Mn.


This paper studies the relationship between political instability, measured by a country's Polity2 decmocratization score, and economic performance, measured by the GDP per capita. We use data from 1985 to 2002 for 25 countries in five different regions: Africa, Central and Eastern Europe, Latin America, the Middle East, and Southeast Asia. The results of the empirical models in this paper show a significant relationship between democracy and economic growth, but no significant sign of endogeneity (joint causality) as suggested by previous research. This paper also finds the 'optimal' Polity2 score that maximizes GDP per capita in each of the five regions.



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