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 show that political polarization has a negative effect on economic growth through its effect on private investment, human capital investment, and total factor productivity. We also show that state capacity—the government’s ability to accomplish policy goals effectively— mitigates the adverse effect of polarization.
Keywords: political polarization, economic growth, investment, total factor productivity
JEL classification: D72, O47