Parties, Time Horizons, and the Pursuit of Economic Growth through Technological Development.

Abstract

Under what conditions will governments deploy policies thought to foster technological progress? Economic models point to the importance of technological progress for long-term economic growth. The models also argue of the importance of public policy in offsetting market failures that would otherwise slow technological progress. Still, we know very little about the conditions under which governments will deploy these policies. In fact, we might suspect that politicians have very few incentives to deploy technology policies at all. The received wisdom in comparative political economy would suggest that politicians’ time horizons are far shorter than those needed to value technology policies, which tend to have long deferred returns, but require substantial upfront financial costs. The motivating observation for the dissertation is that some governments do, in fact, deploy technology policies despite the seeming time horizon incompatibility. Under what conditions will politicians deploy policies designed to catalyze technological progress? To answer this question, I propose a model relating the nature of a country’s dominant political parties to economic policy. Within well-institutionalized ruling parties, an overlapping generations bargain can obtain wherein a younger generation of party members (called party deputies) can achieve the support for technology policies from the party's older generation of party leaders if deputies transfer utility to leaders by committing credibly to supporting leaders’ others policy agendas. Deputies’ credible commitment increases leaders’ seniority powers. Deputies also forgo any opportunity to bargain over the distribution of the pork elements of whatever technology polices are deployed; leaving the distribution of pork entirely to the leaders. Thus, a bargain is reached within the party that allows technology policies to be deployed even though the returns to such policies are relatively delayed. Technology polices are valuable to deputies because they grant deputies more policy flexibility over a longer period of time compared to available alternative growth-policy options. The bargain that produces technology policy as one output will not emerge from within fragile, weakly-institutionalized ruling parties. I test the model on democracies of all levels of economic development using data on human capital formation and total factor productivity as dependent variables.