19
Introduction

There is currently an explosion of interest in the role of institutional factors in secular economic growth. Standard neoclassical economic growth theory is devoid of institutions and predicts that, in long-run equilibrium, growth rates will be equal across countries, or at most will vary with differences in labour force participation. Recently though, Romer ( 1986) and Lucas ( 1987) have developed growth models that contain some form of increasing social returns. These endogenous growth models imply that institutional factors and government policies can systematically affect economic growth, and there is now a large empirical literature examining these phenomena. Despite recent progress, the empirical relevance of policies and institutions for long-run economic growth is still hotly debated. Levine and Renelt ( 1992) argue that 'the broad array of fiscal-expenditure variables, monetary-policy indicators, and political stability indexes considered by the profession are also not robustly correlated with growth'. I believe that Levine and Renelt are wrong. What they see as fragile results, I see as overly averaged data and inappropriately pooled countries in their regression analysis.

In this paper, I offer a brief general assessment and critique of the empirical literature on institutions and economic growth. I then present some new empirical evidence on how the relationship between government and labour affects macroeconomic performance. Specifically, I study the centralized bargaining hypothesis most closely associated with Calmfors and Driffill ( 1988) and the leftist-corporatist government- unionization growth linkage espoused by Cameron ( 1984), Crouch ( 1985), Lange and Garrett ( 1985, 1987), Garrett and Lange ( 1989) and Alvarez, Garrett and Lange ( 1991). I find almost no support for the Calmfors-Driffill notion that both extremely decentralized and extremely centralized countries perform better that those in the middle. I do find some limited

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