IDEAS home Printed from https://ideas.repec.org/a/sae/emecst/v7y2021i1p76-93.html
   My bibliography  Save this article

The Efficacy of Democracy and Freedom in Fostering Economic Growth

Author

Listed:
  • M. Adnan Kabir
  • Najib Alam

Abstract

The relationship between democracy, freedom, and economic development has a multidisciplinary and diverse literature without a settled or concrete answer. Studies that attempt to validate this relationship have a cacophony of diametrically opposed narratives with a degree of dissonance that does not always articulate a complete understanding of the issue. This study attempts to contribute to the existing complex and ever-changing literature by empirically estimating whether democracy, personal and economic freedom affect economic growth. This paper empirically investigates 115 countries over the period 2006–2018 using panel regressions and found that the quality of democracy was significant in explaining the per capita income growth dynamics of a country. Economic freedom also has a statistically significant and positive relationship with per capita income progression. Personal freedom, on the other hand, is detrimental to growth in countries that have low levels of freedom but acts as a catalyst for growth when a society has reached a mature level of personal freedom. Other factors related to development entrapment such as income inequality, unemployment, and urbanization also have a significant impact on economic progression. In line with historical consensus, countries institutionally insulated from democracy fare worse economically than their democratic counterparts.

Suggested Citation

  • M. Adnan Kabir & Najib Alam, 2021. "The Efficacy of Democracy and Freedom in Fostering Economic Growth," Emerging Economy Studies, International Management Institute, vol. 7(1), pages 76-93, May.
    • Handle: RePEc:sae:emecst:v:7:y:2021:i:1:p:76-93
    DOI: 10.1177/23949015211057942
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/23949015211057942
    Download Restriction: no
    File URL: https://libkey.io/10.1177/23949015211057942?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. David Cuberes & Michał Jerzmanowski, 2009. "Democracy, Diversification and Growth Reversals," Economic Journal, Royal Economic Society, vol. 119(540), pages 1270-1302, October.
    2. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    3. Robert J. Barro, 1991. "A Cross-Country Study of Growth, Saving, and Government," NBER Chapters, in: National Saving and Economic Performance, pages 271-304, National Bureau of Economic Research, Inc.
    4. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    5. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    6. Helliwell, John F., 1994. "Empirical Linkages Between Democracy and Economic Growth," British Journal of Political Science, Cambridge University Press, vol. 24(2), pages 225-248, April.
    7. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    8. de Haan, Jakob & Sturm, Jan-Egbert, 2000. "On the relationship between economic freedom and economic growth," European Journal of Political Economy, Elsevier, vol. 16(2), pages 215-241, June.
    9. Adam Przeworski & Fernando Limongi, 1993. "Political Regimes and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 51-69, Summer.
    10. Torsten Persson & Guido Tabellini, 2009. "Democratic Capital: The Nexus of Political and Economic Change," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(2), pages 88-126, July.
    11. Pauline Grosjean & Claudia Senik, 2011. "Democracy, Market Liberalization, and Political Preferences," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 365-381, February.
    12. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    13. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    14. Maria Cracolici & Miranda Cuffaro & Peter Nijkamp, 2010. "The Measurement of Economic, Social and Environmental Performance of Countries: A Novel Approach," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 95(2), pages 339-356, January.
    15. Scully, Gerald W, 1988. "The Institutional Framework and Economic Development," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 652-662, June.
    16. Salahodjaev, Raufhon, 2015. "Democracy and economic growth: the role of intelligence in cross-country regressions," MPRA Paper 65716, University Library of Munich, Germany, revised 26 Apr 2015.
    17. Richard Jong-A-Pin & Jakob Haan, 2011. "Political regime change, economic liberalization and growth accelerations," Public Choice, Springer, vol. 146(1), pages 93-115, January.
    18. Madeeha Gohar Qureshi & Eatzaz Ahmed, 2012. "The Inter-linkages between Democracy and Per Capita GDP Growth: A Cross Country Analysis," PIDE-Working Papers 2012:85, Pakistan Institute of Development Economics.
    19. Erich Weede, 1983. "The Impact of Democracy on Economic Growth: Some Evidence from Cross‐National Analysis," Kyklos, Wiley Blackwell, vol. 36(1), pages 21-39, August.
    20. Doucouliagos, Chris & Ulubasoglu, Mehmet Ali, 2006. "Economic freedom and economic growth: Does specification make a difference?," European Journal of Political Economy, Elsevier, vol. 22(1), pages 60-81, March.
    21. Hans Gersbach & Lars-H. Siemers, 2014. "Can democracy induce development? A constitutional perspective," Public Choice, Springer, vol. 159(1), pages 177-196, April.
    22. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
    23. W. Kenn Farr & Richard A. Lord & J. Larry Wolfenbarger, 1998. "Economic Freedom, Political Freedom, and Economic Well-Being: A Causality Analysis," Cato Journal, Cato Journal, Cato Institute, vol. 18(2), pages 247-262, Fall.
    24. Bhagwati, Jagdish N, 2002. "Democracy and Development: Cruel Dilemma or Symbiotic Relationship," Review of Development Economics, Wiley Blackwell, vol. 6(2), pages 151-162, June.
    25. Bell, Clive & Gersbach, Hans, 2009. "Child Labor And The Education Of A Society," Macroeconomic Dynamics, Cambridge University Press, vol. 13(2), pages 220-249, April.
    26. Abbas Pourgerami, 1988. "The political economy of development: A cross-national causality test of development-democracy-growth hypothesis," Public Choice, Springer, vol. 58(2), pages 123-141, August.
    27. Dick, G William, 1974. "Authoritarian versus Nonauthoritarian Approaches to Economic Development," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 817-827, July/Aug..
    28. Robert J. Barro & Jong-Wha Lee, 1993. "Losers and Winners in Economic Growth," NBER Working Papers 4341, National Bureau of Economic Research, Inc.
    29. Viktoria Spaiser & Shyam Ranganathan & Richard P Mann & David J T Sumpter, 2014. "The Dynamics of Democracy, Development and Cultural Values," PLOS ONE, Public Library of Science, vol. 9(6), pages 1-11, June.
    30. Jac C. Heckelman, 2000. "Economic Freedom and Economic Growth: A Short-run Causal Investigation," Journal of Applied Economics, Universidad del CEMA, vol. 3, pages 71-91, May.
    31. de Haan, Jakob & Siermann, Clemens L J, 1996. "New Evidence on the Relationship between Democracy and Economic Growth," Public Choice, Springer, vol. 86(1-2), pages 175-198, January.
    32. Pak Hung Mo, 2000. "Income Inequality and Economic Growth," Kyklos, Wiley Blackwell, vol. 53(3), pages 293-315, August.
    33. Robert J. Barro, 1999. "Determinants of Democracy," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 158-183, December.
    34. Lipset, Seymour Martin, 1959. "Some Social Requisites of Democracy: Economic Development and Political Legitimacy1," American Political Science Review, Cambridge University Press, vol. 53(1), pages 69-105, March.
    35. Jagdish Bhagwati, 1995. "Democracy and Development: New Thinking on an Old Question," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 30(1), pages 1-18, January.
    36. Hristos Doucouliagos & Mehmet Ali Ulubaşoğlu, 2008. "Democracy and Economic Growth: A Meta‐Analysis," American Journal of Political Science, John Wiley & Sons, vol. 52(1), pages 61-83, January.
    37. Stroup, Michael D., 2007. "Economic Freedom, Democracy, and the Quality of Life," World Development, Elsevier, vol. 35(1), pages 52-66, January.
    38. de Haan, Jakob & Siermann, Clemens L J, 1995. "A Sensitivity Analysis of the Impact of Democracy on Economic Growth," Empirical Economics, Springer, vol. 20(2), pages 197-215.
    39. Brunetti, Aymo, 1997. "Political Variables in Cross-Country Growth Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 11(2), pages 163-190, June.
    40. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    41. Evelyne Huber & Dietrich Rueschemeyer & John D. Stephens, 1993. "The Impact of Economic Development on Democracy," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 71-86, Summer.
    42. de Haan, Jakob & Sturm, Jan-Egbert, 2003. "Does more democracy lead to greater economic freedom? New evidence for developing countries," European Journal of Political Economy, Elsevier, vol. 19(3), pages 547-563, September.
    43. Jagdish N. Bhagwati, 2002. "Democracy and Development: Cruel Dilemma or Symbiotic Relationship?," Review of Development Economics, Wiley Blackwell, vol. 6(2), pages 151-162, June.
    44. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
    45. Alesina, Alberto & Özler, Sule & Roubini, Nouriel & Swagel, Phillip, 1996. "Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
    46. Marc Schiffbauer & Ling Shen, 2010. "Democracy vs. dictatorship," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 18(1), pages 59-90, January.
    47. Minier, Jenny A, 1998. "Democracy and Growth: Alternative Approaches," Journal of Economic Growth, Springer, vol. 3(3), pages 241-266, September.
    48. Dawid Piątek & Katarzyna Szarzec & Michał Pilc, 2013. "Economic freedom, democracy and economic growth: a causal investigation in transition countries," Post-Communist Economies, Taylor & Francis Journals, vol. 25(3), pages 267-288, September.
    49. Dasgupta, Partha, 1990. "Well-Being and the Extent of Its Realisation in Poor Countries," Economic Journal, Royal Economic Society, vol. 100(400), pages 1-32, Supplemen.
    50. Aymo Brunetti, 1997. "Political Variables in Cross‐country Growth Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 11(2), pages 163-190, June.
    51. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dennis Ridley & Aryanne de Silva, 2020. "Game Theoretic Choices Between Corrupt Dictatorship Exit Emoluments and Nation-Building CDR Benefits: Is There a Nash Equilibrium?," The American Economist, Sage Publications, vol. 65(1), pages 51-77, March.
    2. Hatice KÜÇÜKKAYA, 2017. "EUREFE’17 International Conference," Turkish Economic Review, KSP Journals, vol. 4(3), pages 343-344, September.
    3. Dennis Ridley, 2021. "Capitalism/Democracy/Rule of Law Interactions and Implications for Entrepreneurship and Per Capita Real Gross Domestic Product Adjusted for Purchasing Power Parity," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 12(1), pages 384-411, March.
    4. Zuazu, Izaskun, 2019. "The growth effect of democracy and technology: An industry disaggregated approach," European Journal of Political Economy, Elsevier, vol. 56(C), pages 115-131.
    5. Aslý YENÝPAZARLI, 2017. "Economic freedom and effects on economic growth: A time series analysis for Turkey," Turkish Economic Review, KSP Journals, vol. 4(3), pages 345-351, September.
    6. Gupta, Dipak K. & Madhavan, M. C. & Blee, Andrew, 1998. "Democracy, economic growth and political instability: An integrated perspective," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 27(5), pages 587-611.
    7. Celal Kucuker, 2003. "Türkiye Ýktisat Kongresi Büyüme Stratejileri Çalýþma Grubu," Working Papers 2003/5, Turkish Economic Association.
    8. Ignacio Amate-Fortes & Almudena Guarnido-Rueda & Agustin Molina-Morales, 2017. "Economic and Social Determinants of Human Development: A New Perspective," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 133(2), pages 561-577, September.
    9. Madeeha Gohar Qureshi & Eatzaz Ahmed, 2012. "The Inter-linkages between Democracy and Per Capita GDP Growth: A Cross Country Analysis," PIDE-Working Papers 2012:85, Pakistan Institute of Development Economics.
    10. Mishra, Sudhanshu K, 2018. "A Simultaneous Equation Model of Globalization, Corruption, Democracy, Human Development and Social Progress," MPRA Paper 84213, University Library of Munich, Germany.
    11. Yasir Khan & Attiya Yasmin Javid, 2015. "The Impact of Formal and Informal Institutions on Economic Performance: A Cross-Country Analysis," PIDE-Working Papers 2015:130, Pakistan Institute of Development Economics.
    12. Arvanitidis, Paschalis & Petrakos, George & Pavleas, Sotiris, 2007. "Determinants of economic growth: the experts’ view," Papers DYNREG20, Economic and Social Research Institute (ESRI).
    13. Helliwell, John F., 1994. "Empirical Linkages Between Democracy and Economic Growth," British Journal of Political Science, Cambridge University Press, vol. 24(2), pages 225-248, April.
    14. Jakob De Haan & Susanna Lundström & Jan‐Egbert Sturm, 2006. "Market‐oriented institutions and policies and economic growth: A critical survey," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 157-191, April.
    15. Muhammad Zakaria & Bashir Ahmed Fida, 2009. "Democratic Institutions and Variability of Economic Growth in Pakistan: Some Evidence from the Time-series Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 48(3), pages 269-289.
    16. Jian-Guang Shen, 2002. "Democracy and growth: An alternative empirical approach," Development and Comp Systems 0212002, University Library of Munich, Germany.
    17. Claude Diebolt & Tapas Mishra & Bazoumana Ouattara & Mamata Parhi, 2010. "Does democratic distance matter for cross-country growth interdependence?," Working Papers 10-12, Association Française de Cliométrie (AFC).
    18. Durlauf, Steven N. & Quah, Danny T., 1999. "The new empirics of economic growth," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 4, pages 235-308, Elsevier.
    19. Mohtadi, Hamid & Roe, Terry L., 2003. "Democracy, rent seeking, public spending and growth," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 445-466, March.
    20. Chen, Baizhu & Feng, Yi, 1996. "Some political determinants of economic growth: Theory and empirical implications," European Journal of Political Economy, Elsevier, vol. 12(4), pages 609-627, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:emecst:v:7:y:2021:i:1:p:76-93. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: https://www.imi.edu/delhi/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.