Democracy, Finance and Development
AbstractThe 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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Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-458.
Length: 36 pages
Date of creation: Dec 2006
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Other versions of this item:
- NEP-ALL-2007-01-13 (All new papers)
- NEP-DEV-2007-01-13 (Development)
- NEP-POL-2007-01-13 (Positive Political Economics)
- NEP-SOC-2007-01-13 (Social Norms & Social Capital)
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