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Economic Growth and the Rise of Democracy: A Granger Causality Analysis

Author

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  • Joshi, Prathibha

    (Gordon State College, Barnesville, Georgia, USA)

  • Beck, Kris

    (Gordon State College, Barnesville, Georgia, USA)

Abstract

Political freedom and economic growth have a complicated relationship, with a wide variety of studies finding different and sometimes contradictory results as to whether increased political freedom leads to more economic growth or rising economic growth creates opportunities for more democratic practices. To further cloud the picture, some authoritarian countries, like China and Vietnam, have experienced substantial economic development but have not embraced more political freedom as they have grown. Hence the interaction between economic growth and political freedom remains unclear. We therefore investigate the correlations between economic growth and political freedom in three categories, an updated Global, OECD, and non-OECD dataset; we use a vector autoregression (VAR) model through Generalized Method of Moments (GMM) estimation along with Granger causality analysis to determine how each variable impacts the other or if they indeed do so at all. We find that there is no Granger-causal link between economic growth and political freedom in either direction, with the exception of OECD countries where growth does Granger-cause political freedom. La crescita economica e il sorgere della democrazia: un’analisi di Granger-causalità La relazione tra libertà politica e crescita economica è complicata, con un’ampia letteratura al riguardo che ha mostrato evidenze differenti ed a volte contraddittorie riguardo alla possibilità che una maggiore libertà politica conduca ad una maggiore crescita economica o che la crescita economica crei opportunità per una più ampia democrazia. Per annebbiare ulteriormente questo quadro, alcuni paesi totalitari come Cina e Vietnam hanno vissuto un sostanziale sviluppo economico ma non hanno contemporaneamente applicato una maggiore libertà politica. Quindi l’interazione tra crescita economica e libertà politica rimane poco chiara. Pertanto in questo articolo si esamina questa correlazione in tre categorie di paesi: un campione globale aggiornato, i paesi OCSE e i paesi non-OCSE. Il modello usato è un VAR, stimato con la tecnica Generalized Method of Moments (GMM) e l’analisi di Granger-causalità al fine di determinare come ogni variabile influisca sull’altra o se effettivamente si influenzano tra loro. I risultati indicano che non c’è un legame di Granger-causalità tra la crescita economica e la libertà politica in nessuna direzione, ad eccezione dei paesi OCSE, per i quali la crescita ha un nesso di Granger-causalità con la libertà politica.

Suggested Citation

  • Joshi, Prathibha & Beck, Kris, 2021. "Economic Growth and the Rise of Democracy: A Granger Causality Analysis," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 74(4), pages 389-414.
  • Handle: RePEc:ris:ecoint:0905
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic Growth; Political Freedom; Granger Causality; OECD; Non-OECD;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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