Democracy and economic growth

Abstract

Many nations consider democracy to be an important social value. Nevertheless, does it mean that countries with more democracy are often wealthier? What are the relationships between economic growth and democracy? This research includes 167 countries to study the issue. We employ the data of the democracy index, corruption perception index, inflation, population, number of internet users, balance of trade, foreign direct investment, etc. We have also included sub-indices such as the electoral process and pluralism, functioning of government, political participation, culture, and civil liberties. An innovative part of the paper is how the corruption perception index has been included in our analysis. Besides, principal component analysis is applied to study the relationship between democracy and economic growth. We conclude that it takes democracy a very long time to affect the macro-economy. The fast pace of change in democracy even harms the macro-economy. If the economy reaches a well-developed stage, the economy will gradually transform into a democratic city automatically in the absence of any external pressure.

The Efficacy of Democracy and Freedom in Fostering Economic Growth

“…Such ideological questions were most prominent during the Cold War. The most vivid example is the stark difference between East and West Germany when it came to democracy and freedom (Li, Tang, & Leung, 2019). Democratic West Germany massively outperformed Communist East Germany when it came to economic wellbeing.…”

“…Democracy simply defined as majority voting is not sufficient to foster growth (Gersbach & Siemers, 2014). Moreover, studies such as Li et al (2019) even downplay the active role of democracy by claiming that if an economy reaches a certain level of development, it will automatically and gradually transform itself into a democracy without any external force.…”

“…Democracy is a core value in many modern societies (Li et al, 2019) and it is generally assumed that greater economic and political freedom act as catalysts to enhance growth (Farr et al, 1998). Some theorists often argue that democracy is the best, most just, and most legitimate form of government (Goldman, 2015).…”