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Democracy, Finance and Development

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  • 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)

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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Bibliographic Info

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
Date of revision:
Handle: RePEc:tky:fseres:2006cf458

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  1. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
  2. Dani Rodrik, 2000. "Institutions for High-Quality Growth: What They are and How to Acquire Them," NBER Working Papers 7540, National Bureau of Economic Research, Inc.
  3. Philipp Harms & Heinrich Ursprung, 2001. "Do Civil and Political Repression Really Boost Foreign Direct Investments?," CESifo Working Paper Series 421, CESifo Group Munich.
  4. Chousa, Juan Pineiro & Khan, Haider A. & Melikyan, Davit & Tamazian, Artur, 2005. "Assessing institutional efficiency, growth and integration," Emerging Markets Review, Elsevier, vol. 6(1), pages 69-84, April.
  5. Alberto Alesina & Nouriel Roubini & Gerald D. Cohen, 1997. "Political Cycles and the Macroeconomy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510944, January.
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