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Explaining economic growth in advanced capitalist democracies: varieties of capitalism and welfare production regimes

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Comparative European Politics Aims and scope

Abstract

Why do some advanced capitalist democracies experience relatively higher economic growth rates? In this paper, it is argued that complementarities between varieties of coordination and systems of social protection can help explain differences in long-run economic performance. Testing the explanatory power of the original varieties of capitalism (VoC) model and the welfare production regime (WPR) model, the article finds that long-run economic growth is conditioned by the extent to which systems of social protection are complementary to varieties of coordination. Using time-series cross-section data on 17 OECD countries from 1974 to 2009, the article finds strong support for the hypothesis that coordinated market economies with decommodified welfare states achieve relatively higher economic growth rates in the long run. The WPR model moreover seems better at explaining economic growth compared with the classical VoC model. The welfare state is therefore argued to be crucial in understanding the economic effects of varieties of coordination.

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The author permits using the data (where relevant). Original data sources should be cited where it is relevant.

Notes

  1. Similar predictions can also be derived from Calmfors and Driffill (1988) and Olson (1982).

  2. The VoC framework has been criticized for being too rigid and having trouble accounting for institutional change. Some of these critiques do have merit. However, since this paper is interested in institutional effects (outcomes) and not institutional change, this will not be discussed further. For an overview of critiques see, e.g., Crouch (2005), Becker (2007) and Streeck (2009), and for some rebuttals, see e.g., Hall ad Soskice (2003) and Hall and Thelen (2009).

  3. Or diversified quality production (Streeck 1991).

  4. This relationship is, however, disputed in the literature (Taylor 2004; Witt and Jackson 2016). See also Huo (2015) for a good account of innovation and information in VoC.

  5. In a rebuttal to Room, Esping-Andersen (2000) however argues that Room’s two proposed dimensions (decommodification for consumption and self-development) may not be that different from one another.

  6. The countries are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, New Zealand, Norway, Sweden, Switzerland, United Kingdom and the USA.

  7. As the indexes have been standardized a one-unit change corresponds to a one standard deviation change in either variable.

  8. A highly significant Wooldridge test validates the use of PCSE.

  9. Including a lagged dependent variable have also been argued to “suppress” the explanatory power of the other independent variables (Achen 2000), although Beck and Katz (2011) argue that it is rarely a problem.

  10. In relation to this problem it has also become more common to refrain from using country fixed effects in empirical studies with a similar institutional variable set-up (Busemeyer 2015; Busemeyer and Iversen 2014; Hall and Gingerich 2009; Huber and Stephens 2001; Huber and Stephens 2014; Martin and Swank 2012: ch 12, to mention but a few).

  11. A highly significant F test suggest year fixed effects should be included.

  12. A VIF test, moreover, indicates no major problems with multicollinearity in the main set-up.

  13. As there is only one observation available in Hall and Gingerich’s coordination measure it has been extrapolated to cover the whole period—as the authors do themselves in a similar set-up. The results are not shown; however, they can be acquired upon request.

  14. The marginal effects are not shown; however, they can be acquired upon request.

  15. These regressions are not shown; however, they can be acquired upon request.

  16. The unemployment, sickness, and pension decommodification scores are like the decommodification index lagged with five years. Missing years are like the decommodification index also extrapolated back in time based on the latest year in the data series.

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Acknowledgements

I am grateful for the comments and guidance received by Jørgen Goul Andersen, Timm Betz, Peter Hall, Jacob Rubæk Holm, Jan Holm Ingemann, Kristian Kongshøj, Christian Albrekt Larsen, Amy Pond, members of CCWS, participants at DAPSA 2018, and the anonymous reviews. Special thanks to Jesper Eriksen for comments and discussions.

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  1. Hochschule Für Politik München, TUM, Richard-Wagner-Straße 1, 80333, Munich, Germany

    Søren Frank Etzerodt

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Etzerodt, S.F. Explaining economic growth in advanced capitalist democracies: varieties of capitalism and welfare production regimes. Comp Eur Polit 19, 471–493 (2021). https://doi.org/10.1057/s41295-021-00242-9

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