Political Polarization and Economic Growth

This study examines the effect of political polarization, measured by the dispersion of self-reported political ideologies, on economic growth. Using a panel of 75 countries from 1990 to 2019, we find that political polarization has a negative effect on economic growth through its effect on private investment, human capital investment, and total factor productivity. We reveal that state capacity—the government’s ability to achieve intended policy goals—mitigates the adverse effect of polarization. JEL Classifications: D72, O47.