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Does Democracy Matter for Economic Growth? Empirical Evidence from Indonesia

Author

Listed:
  • N. Nuzulman
  • Raja Masbar
  • B. S. Nazamuddin
  • M. Shabri Abd. Majid

Abstract

This study aims to empirically examine the mediating effect of investment on the relationship between democracy indices (i.e., civil freedom, political freedom, and democratic institutions) and economic growth across 33 provinces in Indonesia over the period from 2012 to 2020. Using a dynamic panel data regression of the Generalized Method of Moments (GMM) within the path analysis framework, the study found that investment, political freedom, and democratic institutions have promoted Indonesia’s economic growth, while civil freedom has deteriorated the economic growth of the country. In addition, investment has partially mediated the effect of the democracy indices on Indonesian economic growth. These results suggest the importance of providing more political freedom and democratic institutions and limiting civil freedom to promote investment and consequently boost economic growth.

Suggested Citation

  • N. Nuzulman & Raja Masbar & B. S. Nazamuddin & M. Shabri Abd. Majid, 2023. "Does Democracy Matter for Economic Growth? Empirical Evidence from Indonesia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 34-50.
    • Handle: RePEc:bas:econst:y:2023:i:7:p:34-50
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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