Role of Political Institutions on Economic Growth: Empirical Evidence

This paper explores the effect of political institutions on economic development via its causation of economic reforms. Focusing on the causality between political institutions – democracy, specifically – and economic reforms. After all, one way of improving society's well-being is through promoting economic growth, thereby narrowing the cross-country income differences. We investigate whether economic reforms are more likely to take place in democracies since greater accountability may lead the government to adopt measures that gain majority support. Economic reforms are referred to as comprehensive measures that broaden the market's scope including the international. Using the same methodology as in the previous paper1, the dynamic panel GMM estimator, we study whether democracy causes economic reforms in different sectors, namely fiscal measures, trade liberalisation, credit market liberalisation, capital account openness and labour market deregulation. Reciprocally, test if economic reforms cause the democratisation process, and how political institutions and economic reforms interact.