Centralization of Power and Economic Outcomes in Parliamentary Democracies

This repository contains the empirical analysis and replication code for an undergraduate thesis examining how political centralization through party dominance affects investment and inequality in parliamentary democracies using a long-run panel dataset (1960–2022).

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Overview

This project analyzes whether centralization of power, measured by the share of parliamentary seats held by the governing party, influences key economic outcomes. Using panel data from 31 parliamentary democracies across Europe and Asia, the study evaluates how political power concentration affects:

• Investment (Gross Capital Formation)
• Well-being (Income inequality)

The analysis combines political data from election commissions with macroeconomic indicators from the World Bank (WDI) and applies panel econometric techniques in Stata.

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Research Motivation

Existing literature provides mixed evidence on whether political centralization improves or harms economic performance. Most studies rely on abstract governance indices.

This project contributes by:

• Introducing a new, transparent measure of centralization based on party dominance
• Applying long-horizon panel analysis (1960–2022)
• Examining both investment outcomes and distributional consequences

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Key Research Questions

• Does higher political centralization reduce investment potential?
• Does centralization increase inequality and lower societal well-being?
• How do these effects vary across countries and over time?

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Data

Sources

• World Development Indicators (World Bank)
• National Election Commission websites (parliamentary seat data)

Coverage

• Countries: 31 parliamentary democracies
• Period: 1960–2022
• Structure: Unbalanced panel dataset

Key Variables

• Degree of Centralization
  Ratio of governing party seats to total parliamentary seats
• Investment Indicator
  Log of Gross Capital Formation
• Well-Being Indicator
  Gini Index (income inequality)

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Methodology

The analysis uses panel econometric techniques:

• Fixed Effects Models (country-level controls)
• Hausman Test (model selection)
• Two-Stage Least Squares (2SLS) to address endogeneity
• Robust standard errors throughout

The models estimate how changes in political centralization affect economic outcomes within countries over time.

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Key Findings

Investment Outcomes

• Higher political centralization is negatively associated with investment
• A rise in party dominance significantly reduces gross capital formation
• Results remain robust after controlling for savings and government expenditure

Well-Being Outcomes

• Greater centralization is associated with higher income inequality
• Inequality increases as power becomes more concentrated in ruling parties
• Effects persist after accounting for income distribution and poverty controls

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Interpretation

The findings suggest that while centralized power may allow faster decision-making, long-term economic performance deteriorates when political authority becomes overly concentrated. Investment declines and inequality rises as dominant parties accumulate power and resources.

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Repository Structure

• Codes_cen_eco.do — Complete Stata do-file for data cleaning and analysis
• Cleaned_Merged_Dataset.dta — Final panel dataset used for regressions
• Jahan,ARTahseen_WS.Thesis.pdf — Full undergraduate thesis (methods, theory, results)

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How to Run the Analysis

Requirements

• Stata (any recent version)

Steps

1. Clone or download this repository
2. Open Stata
3. Set the working directory to the project folder
4. Run:

   do Codes_cen_eco.do
   

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