Carnegie- Rochester Conference Series on Public Policy 39 (1993) 95- 140 North-Holland zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA Central bank independence, growth, investment, and real rates* zyxwvutsrqponmlkjihgfedcbaZYXW Alex Cukiermant Tel-Aviv University, Tel-Aviv 69978, Israel Pant elis Kalaitzidakis zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFE Columbia University, New York, New York 10027 Lawrence H. Summers The W orld Bank, W ashington, D.C. 20433 and Steven B. Webb The W orld Bank, W ashington, D.C. 20433 Abstract This paper uses new measures of central bank independence (CBI) for a sample of up to seventy countries in order to investigate the effect of CBI on growth, private investment, productivity growth, and the variability (over time) of growth, controlling for other variables. The proxies for independence are an aggregate index of legal independence based on sixteen specific features of the central banks’ charters and the average turnover rate of central bank governors. The paper also addresses the issue of simultaneity between growth and inflation by using an index of political vulnerability of the central bank. This index is the fraction of political transitions which are followed, within a short period of time, by a replacement of the governor of the central bank. A main finding of the paper is that CBI h as a positive effect on growth in LDCs (less-developed countries) and no effect within industrial countries. The paper also presents evidence on the relation between CBI and the distri- bution of interest rates. *We are indebted to Matthew Canzoneri, William Easterly, Alan Gelb, and Allan Meltzer for useful comments and to participants at the Conference for a lively discussion. t Correspondence to: Alex Cukierman, Department of Economics, Tel-Aviv University, Ramat-Aviv, Tel-Aviv 69978, Israel. Elsevier Science Publishers B.V.