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The Wealth of Nations: A Study of Political Institutions and Economic Growth

June 23rd, 2010

Team: Kathryn Gotcher, Kyle Merino, Gregory Moran
Faculty Advisor: Dr. Siems   Year: 2009
Documents: Final Report (Word), Final Presentation (PPT)

In the present global economic state, finding ways to improve a nation’s economy is vital to government leaders. The problem presented to us was to study various political institutions and policies of the world’s nations and determine which measures, if any, are accurate predictors of economic health and growth. In particular, we were interested in the effect that measures of free trade would have upon the economy.

We used two modeling methods, Neural Network Clustering and Data Envelopment Analysis to classify and study 126 of the world’s nations. Specifically self organizing maps were used for clustering. We used eight individual data variables in our models and analyzed these eight variables with multiple regression to determine statistical significance to the models.

Based on our findings, we believe that it is possible to reasonably predict economic health based on variables of political institutions. In particular, we discovered that, of the eight variables that we studied, perceived corruption and human development measures are vital to stimulating the health of the economy. In order for economies to grow, it seems that corruption must be kept down within the system and citizens must be provided with opportunities to be educated, live long lives, and have good jobs. We also discovered a substantial link between a strong legal system and these two necessary growth variables. We are unsure of the causal link between the legal systems and corruption and human development, and this will require further study. However, it does seem that one cannot exist without the other.

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