The presentation explains the relationship between democracy and economic growth, and the general conclusion is that their relation is u-shaped, and the mechanism is complex, suggesting that it is not feasible to take democracy as the solution to all problems
The presentation explains the relationship between democracy and economic growth, and the general conclusion is that their relation is u-shaped, and the mechanism is complex, suggesting that it is not feasible to take democracy as the solution to all problems
The presentation explains the relationship between democracy and economic growth, and the general conclusion is that their relation is u-shaped, and the mechanism is complex, suggesting that it is not feasible to take democracy as the solution to all problems
The presentation explains the relationship between democracy and economic growth, and the general conclusion is that their relation is u-shaped, and the mechanism is complex, suggesting that it is not feasible to take democracy as the solution to all problems
Why is Democracy a central issue in discussion of economic development?
The Fundamental Dilemma: Government too Strong VS. too Weak Economic Consequences: Protect VS Jeopardize economic freedoms The Central Issue: What Political System? Requirements: Strong yet carries self-enforcing limits The Answer: Democracy Questions: Democracy Democracy?
1. Definition Democracy Huntington (1991) a one public virtue, not the only one, and the relation of democracy to other public virtues and vices can only be understood if democracy is clearly distinguished from other characteristics of political system; Polterovich and Popov (2007) Democracy generally includes the rights to vote, to be elected, and to form political parties as well as freedom of political competition.
Democracy and Economic Growth
1. Definition Economic Growth Fang (1997) The average growth rate of real Gross Domestic Product (GDP) per capita and used a group of economic control variables as significant stimulant to growth which includes GDP, human capital accumulation, investment, inflation, and trade expansion; Baum and Lake (2003) Consisted of the level of household income per capita, population growth, investment in physical capital and investment in human capital.
Democracy and Economic Growth
2.1 Direct Relation between Democracy and Economic Growth Positive effect - Compatibility perspective Acemoglu and Robinson (2012) Political institutions determines economic institutions Sirowy and Inkeles (1990) Less developed countries (LDCs) democratic regimes are appropriate to promote sustained and equitable economic growth; Heo and Tan (2001) Democracy tends to encourage and to prepare economic actors such as entrepreneurs and businessman to exercise economic freedom and thus, it could push the government to promote economic freedom and, eventually, it will contribute to economic growth; Helliwell (1994) and Heo and Tan (2001) A high level of economic growth has the capability to increase its level of education and also the income of citizens. Thus, it will increase the demands for many welfare enhancing policies including the range of political rights and civil liberties so that eventually the country improves its level of
Democracy and Economic Growth
2.1 Direct Relation between Democracy and Economic Growth Negative effect - Conflict perspective Huntington (1968) A negative effect of democracy on economic growth is a consequence of the reality that in democratic developing countries, the peoples needs tend to increase and this leads to high levels of government expenditure. Krieckhaus (2006) Special-interest groups excessively affect the government policy, and this could damage the overall economic activities, such as Latin America and Asia.
Democracy and Economic Growth
2.1 Direct Relation between Democracy and Economic Growth Positive and Negative effect Non-linear perspective Barro (1996) At low levels of democracy, more political freedom enhances growth. The growth rate reaches a peak at a middle level of democracy, and then diminishes if democracy continues to rise Democracy Index
-0.074
0.053
Democracy Index Squared
-0.056
Democracy Index Dummy for (0. 0.33)
0.0046
Democracy Index Dummy for (0.33, 0.67)
0.0155
Democracy
Democracy and Economic Growth
2.2 Indirect Relation between Democracy and Economic Growth Democracy and economic growth have a strong indirect relationship through some channels Human Capital: improving life expectancy in poor countries and secondary school in rich countries; Political Stability: the regular government change is likely to have a positive effect on growth because it provides a stable political environment for economic growth; Quality of Governance: Strong law and order build a strong institution which can stimulate economic growth;
Government size: Democracy activities tend to increase
government consumption which will reduce the economic growth.
Democracy and Economic Growth
2.2 Indirect Relation between Democracy and Economic Growth Income Inequality : It encourages the government to adopt a high rate of taxation. Hence, this condition lowers economic growth Trade Openness : Applying trade openness will increase the internal degree of product market competition and, thus, it will utilize technological transmissions for accessing larger markets an d may provide incentive s for greater policy discipline through regional or global economic transmission; Physical Capital Accumulation : Political process conducts a distribution of national income between capital and labor, resulting in higher wages which reduce the return to capital and lower the incentive for private investment that slows down the process of growth; Investment: People in poor countries prefer consuming immediately, democracy help them to drive wages up and reduce company profit, which decrease the investment and slow down economic growth.
Democracy and Economic Growth
2.3 No Systematic Relation between Democracy and Economic Growth Feng (1997), a democratic system alone is not of a great importance to give effect on economic growth, institutional structure and government development strategies are more important; Helliwell (1994), Nelson and Singh (1998), with statistical regressions democracy does not have any statistical impact on economic growth in some countries, such as, Argentina, Brazil, Pakistan, and some countries at Africa and so on. AmartyaSen (1999), the precondition of this relationship needs the rise people of entrepreneurs and corporate managers, otherwise democracy would lack of ability to motivate economic growth.
Democracy and Economic Growth
3. Economic Growth
Democracy
Barro (1996) The Lipset Hypothesis: increases in various
measures of the standard of living tend to generate a gradual rise in democracy. In contrast, democracies that arise without prior economic development--sometimes because they are imposed from outside--tend not to last. A test of the Lipset hypothesis Variable Coefficient Log(GDP)
0.051 (0.022)
Democracy and Economic Growth
Conclusions Complexity of the issue: multiple forms of democracy; difficulties in cross-national comparisons Democracy is a luxury: rethinking aid policies Better political institutions and growth are interrelated, not isolated: democracy is not the ultimate solution to all problems