Democracy and Growth: A Relationship Revisited

A considerable theoretical and empirical literature failed to reach consensus on the relevance of the nature of political regimes for economic performance. Research on democracy's effect on growth is inconclusive. At the same time, a few studies and cases find authoritarianism to display growth-enhancing attributes. This paper revisits the issue, finding that the debate severely lacks an appropriate description of pertinent characteristics of the sociopolitical environment. Using the framework of the neoclassical growth theory, a model is augmented with a more comprehensive representation of the political economy. It assumes a nonlinear relationship between regime type and economic growth, and introduces the concept of initial democratic capital. The results suggest that democracies are more conducive to growth, particularly in the presence of a tradition of democracy. Sociopolitical stability is also shown to be a necessary complementary condition. Economic freedom and high-level human capital are found favorable for growth. Democracy and economic freedom exhibit diminishing marginal returns for growth. The results are robust to different specifications of the model.Authoritarianism; Democracy; Growth; Political

The Political Economy of Growth in Latin America and East Asia: Some Empirical Evidence

This article examines the historical records of poor economic performance of Latin America compared to East Asia's relative success in the 1970s and 1980s. Although both regions adopted similar postwar protective inward-oriented development strategies, their experiences and economic outcomes diverged significantly in subsequent years. Some have argued that East Asian countries outperformed Latin American ones because they implemented appropriate policies that were adaptive to changes in the global market scene. This study shows that the respective sociopolitical and institutional environment of the two regions was also an important factor contributing to their economic outcomes. A growth model augmented with policy-driven and sociopolitical variables is developed. Using data for selected countries in both regions, the results confirm the hypothesis of a negative direct (efficiency) effect of sociopolitical instability on growth, with an additional indirect (accumulation) effect through investment, irrespective of a country's location. Policies adopted by governments, particularly to control inflation and foreign indebtedness and to enhance economic freedom and human capital accumulation, appear crucial for stability. Such policies influenced economic performance through both the direct and the indirect channels. (JEL "B25", "E13", "F43", "H19", "O57") Copyright 2003 Western Economic Association International.

Regime type, political stability, and economic growth.

Regime type, political stability, and economic growth