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Democracy, Finance and Development

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Author Info
Juan Pineiro Chousa (University of Santiago de Compostila)
Haider A. Khan (Graduate School of International Studies, University of Denver)
Davit N. Melikyan (GSIS, University of Denver)
Artur Tamazian (University of Santiago de Compostila)

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Abstract

The paper tests the hypothesis of a positive impact of democratization on growth and economic development in the sense of capabilities and improvements in well-being. We employ a probit model to estimate the probabilistic indicator for democracy for a large sample of countries. Panel regressions are applied to explain the impact on growth of political institutions (democracy), economic institutions and efficiency of financial management, along with more "traditional" factors. The empirical findings support the hypothesis of decisive role of democratic political and efficient economic institutions in stimulating economic growth. The main results also highlight the importance of effective allocation of financial resources. In addition to the growth regression results, it is argued, consistently with the capabilities approach to development by Sen, that many of the explanatory variables in the growth regression are positively related to development as capabilities enhancement. This is particularly true for democratic freedoms. Finally the problem of 'optimal' institutional development is discussed within the context of resource allocation, migration flows and political decisions.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-458.

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Length: 36 pages
Date of creation: Dec 2006
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Handle: RePEc:tky:fseres:2006cf458

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  20. Kaufmann, Daniel & Kaliberda, Aleksander, 1996. "Integrating the unofficial economy into the dynamics of post-socialist economies : a framework of analysis and evidence," Policy Research Working Paper Series 1691, The World Bank. [Downloadable!]
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  1. Juan PiƱeiro Chousa, & Krishna Chaitanya, & Artur Tamazian, 2008. "Does Growth & Quality of Capital Markets drive Foreign Capital? The case of Cross-border Mergers & Acquisitions from leading Emerging Economies," William Davidson Institute Working Papers Series wp911, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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