The Effect of the Model-Shaping Forms of Government Intervention in the Economy on the Economic Growth

Abstract

This paper argues that the comparative assessment of the market liberalism-dirigisme in different economies should be done based on some specific forms of the government regulation, which are called the model-shaping forms of government intervention in the economy. For its measurement a composite indicator, called the Index of Leftness (Rightness) of Economy, is introduced. IL(R)E is calculated for 62 countries as a weighted average of six sub-indices. Then, IL(R)E (both the Index in general and each of its sub-indices) is used to identify the dependence of economic growth rates on governments’ model-shaping interference in the economy. Cross-country regression analysis shows that an increase in model-shaping government intervention in the economy (indicated by IL(R)E’s change towards one) has a negative impact on economic growth, but different forms of that intervention (measured by individual sub-indices) have different impact. Besides, there is a rather profound difference between the countries with GDP per capita less and more than 30 thousand International dollars. In the second group of countries the impact is less significant. In conclusion the authors hypothesize that the process of moving the economy to the right has a more positive impact on the economic growth than its static (unchanging) proximity to the right pole.