Ryan A. Compton

Panel evidence on finance, institutions and economic growth

This article investigates whether the level of institutional development affects the link between financial development and economic growth. Using a range of cross-sectional and panel approaches we find that the positive effect of banking development on growth is reduced as the level of institutions (e.g. rule of law, lack of corruption) increases. We do not, however, find a similar result when we examine the joint effect of institutional level and stock market development on economic growth. We attribute these results to the ability of banks to perform functions similar to those provided by well-operating institutions, whereas stock markets do not perform such comparable functions.

Military Spending and Growth: The Role of Institutions

Recent literature on whether military spending affects economic growth argues that the relationship may be a conditional one. We add to this literature by considering the role that ‘good institutions’ play in the effect of military spending on growth. Using data from a sample of over 100 countries from 1988 to 2010, our analysis suggests that the effect of military spending on growth is generally negative or zero at best, and this effect is mitigated in the presence of good economic and political institutions.

War! What Is It Good For? A Deep Determinants Analysis of the Cost of Interstate Conflict

Whatever gains may come from fighting wars, economic growth is not among them. We examine the long-run impact of interstate conflict on real GDP per capita for a cross section of countries between 1960 and 2000. We construct a fatality-weighted conflict variable that accounts for both the severity and endogeneity of individual confrontations. We include our conflict measure in a deep determinants income regression in which we control for trade, institutions and geography. We find that a standard deviation increase in fatality-weighted conflict over the period 1960 to 2000 results in an average decrease of about a tenth of a standard deviation in 2000 real GDP per capita.

Economic freedom and social capital

This article brings together two growing literatures, social capital and economic freedom, to examine whether economic freedom contributes to social capital. More specifically, using US state-level data from 1986 to 2004 and both OLS and System GMM dynamic panel estimation, we find that there is no clear trade-off between economic freedom and either the level or growth of social capital.

Investing In Institutions

Robust institutional change is difficult to achieve. However, it is more difficult for some countries than others. We use data on 69 countries between 1870 and 2000 to show that political instability does not always affect growth outcomes. We then develop a simple model to explain this fact in which the likelihood that “good” institutions are abandoned during periods of political uncertainty depends on the opportunity cost of doing so. We operationalize our model by using contract intensive money as a proxy for this initial investment in growth-enhancing institutions. Cross-sectional and panel growth regressions support the models predictions.

A note on economic freedom and political ideology

ABSTRACT Within the field of public economics, there is the perception that Republicans are associated with ‘small government’ and Democrats with ‘big government’. We test this notion by examining whether economic freedom is affected when a single party is in control of the state legislature. We find no link between party control and our main economic freedom indicator, but we do find a positive link between Republican control and the taxation component of economic freedom, suggesting a Republican legislature leads to lower taxation.

More on the Impact of Economic Freedom on the Black–White Income Gap

Using household-level data from 1980 to 2010, we examine whether economic freedom, as measured by the Economic Freedom of North America Index, has similar effects on white household income as it does on black household income. Our findings suggest that the positive effect of economic freedom found in most studies affects black households less than white households. Further, using the Oaxaca decomposition, our results show that economic freedom is an important factor explaining the gap between black and white household incomes.

Banking and inequality: US state evidence

Abstract The question of how financial development affects economic inequality is a subject of much debate. This paper adds to this literature by examining whether banking deregulation affects income inequality using state-level data from the United States from the late 20th century. Specifically, we test the hypothesis that the deregulation of interstate branch-banking restrictions had an effect on income inequality as measured by the Gini Coefficient and Thiel Index. We conduct our tests using fixed-effects OLS models and System GMM dynamic panel analysis. Our results suggest that branching deregulation has resulted in increased income inequality in the United States.