'Pakistan Institute of Development Economics (PIDE)'
Doi
Abstract
Economic growth depends on many factors like the traditional
factors of capital, labour and technological advancement and the
somewhat novel factors of financial development and the nature of
political regime. The relationship between the nature of political
structure and economic growth is quite complicated. There may be direct
and indirect impacts of the nature of political set up on economic
growth. However, these channels remain un-explored to larger extent. The
present study is conducted to analyse economic growth under democracy
and dictatorship for a considerably larger set of countries from 1974 to
2013. The indirect impact of democracy on economic growth is analysed
through an unexplored channel of financial sector performance, which is
expected to be sensitive to regime type. The direct impact of democracy
is found to be positively significant on economic growth. Likewise,
direct impact of financial sector performance on economic growth is also
found to be positive and significant. However, democracy had negative
indirect impact on economic growth through financial sector but the
magnitude of this indirect negative impact is minute enough to be
ignored as compared to large individual direct effects of democracy and
financial sector. JEL Classification: O40, O43, O16 Keywords: Economic
Growth, Democracy, Dictatorship, Financial Sector Performanc