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The democracy and economic growth nexus: Do FDI and government spending matter? Evidence from the Arab world

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  • Bougharriou, Nouha
  • Benayed, Walid
  • Gabsi, Foued Badr

Abstract

The purpose of the paper is to examine the direct and indirect links between democracy and economic growth. To do so, the authors estimate a dynamic panel simultaneous equations model on a sample of 16 Arab countries during the period 2002-2013. This study focuses on two particular channels through which democracy affects growth, namely FDI inflows and public consumption expenditure. The results show that there is no clear relationship between democracy and economic growth in the Arab countries, which confirms the skeptical approach. The ambiguity of this relationship can be explained by the fact that democracy promotes growth indirectly by stimulating FDI inflows and hinders growth by generating higher public consumption expenditure.

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  • Bougharriou, Nouha & Benayed, Walid & Gabsi, Foued Badr, 2018. "The democracy and economic growth nexus: Do FDI and government spending matter? Evidence from the Arab world," Economics Discussion Papers 2018-17, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:201817
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    More about this item

    Keywords

    democracy; economic growth; FDI; government spending; Arab world; dynamic panel simultaneous equations model;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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