Since the five
decades ago, the relationship between political democracy and
economic growth is a significant argues. Section of
nationwide examination takes displayed that a theoretical
division of the effects of democracies governments against totalitarian governments on
growth remains accompanied
by unclear empirical outcomes that lead to an unresolved
resolution of an agreement.

Democracy supporters debate that people motivation
for investment and work, the realdistribution of wealth on the boosting of
private profit and market remain within free data and
property control and scope of freedom (North 1990). In the
economy, democrats may boundgovernment intervenes and they
respond to common requests in areas such as, inspire sustainable and
long-time growth, knowledge, health
and equity (Roderick 1999, Lake and Baum 2001, Baum and Lake
2003). But democracies opponent debate that democracy can
help people to take speedy care at the expenditure of
beneficial enterprise cannot stay protected as
ofinterests of rented persons and quickly assemble resources.
Democrats are believed to exist at odds with class
struggles, community and ethnic. Despite the fact that several writers
respect dictatorial governments defeat conflicts, classify
resistance and compulsory methods for swiftgrowth
(Bhagwati 1995).

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Democracy is defined in various methods. While all modifications definition of democracy
is nominated as the political regime in which those who are elected over
competitive elections stay stable. 

Democratization of any
country from an undemocratic regime can be preceded by a decrease in per capita
GDP and unstable but estimated growth in long-term; on the other hand,
authoritarian regimes have substantially improved their growth at the creation
and failure in the long term (Ulubasoglu, 2006). The purpose for this is
that non-democratic regimes are more effective when they originate for
effecting critical policies, also ethnic determination and conflict but
in the long-term are unstable, for the reason that they stay
more encouraged to extract money (World Economic Forum, 2006).
Democracy regimes about the institutions and policies that method the
source and over that the values of equality and
freedom remain considered and achieved directly or indirectly on
companies or individuals that benefit from the approaches and they
upsurge their growth, concentrating on them, which has an affirmative
impact on the economy.

Traditional
Perspectives of democracy and growth

Does political democracy
cause economic growth? According to Hobbes, dictatorial regimes gain
more general improvement in public welfare because they cannot promote their
own interests in other cases. Huntington (1968) also agrees with this view.
Huntington argues that democracy has weak and delicate political institutions,
and they demand popular earnings on profitable investment. Democratic
regimes are susceptible to recourse to low-income groups and directly
impossible by leaseholders for beneficial activities (Krueger 1974, Bhagwati 1982).
Non-democratic countries can implement the tough economic policies that
are essential aimed at growth, and stop the growing request on the growth
of revenue for low revenue and functioning persons in general,
also the shortage of social occupation due
to class struggles, religious andethnic. Democrats can
not defeat such conflicts. Also, markets must stay to
promote economic growth, and totalitarian countries can easily enable such
policies. Moreover, some level of progress is needed to advance democracy
(Lipset’s hypothesis, 1959). In sum, this view means that political
democracy is a luxury advantage that is not possible by developing
countries. Rao(1984-5), Haggard
(1990), Galenson (1959), Huntigton and Dminguez (1975)
and Andreski(1968) are other advocates of the conflict view
and authoritarian regime knowledge in the economy. The
perspectives of the conflict astonished in the 1950s and 1960s.

Today’s question of
democracy and growth  

Nowadays the question of
political democracy is more intensive, by the accumulation of
research and a growing list of country experiences (such as Latin
America, China, Russia). This view has prevented traditional
barriers to adaptive argument since various aspects of the growth issues of the
broader institutions have been recognized. In
addition, scholars have divided from political democracy
aspects such as the protection of property rights, labor
market and commercial lawsthat previously were present devoted to
political democracy are now observed as measure of
economic democracy. Heretofore, the features of political
democracy, such as political instability, regulatory
quality, corruption, government efficiency and rule of
law, were partially or completely connected to
political democracy. It is also accompanying with further
growth. Newly, the World Bank announced the “Doing
Business” aspect of corporate issues. Specifically Djankoy et
al. (2002a, 2002b, 2005), McLiesh, Shleifer and  Djankoy (2005)
and Botero et al. (2004) has assessed business rules and set the
degree of comfort of the private sector in employment-based economies,
registration and closure of businesses, protecting investors and enforcing
contracts and dealing with licensing and paying taxes.

This study explores mainly the empirical relationship between
democracy and economic growth and my hypothesis is Democracy leads to
economic growth.

 

 

THEORETICAL LOGIC

Democracy leads to economic
growth because, through our democracy, we have stable and foreseeable
institutions that are willing to instrument policies that
are directed at private companies and hence democracy
invests in public goods, investing in human capital, maintaining the rule
of law, and protective human property rights. On the other hand,
democracy is a requiredpart of people’s ability to live freely and
independently. It is an institutional guarantee that policies and
laws produced by a state are in route with
the simple interests of the people. As a result, democracy
is dominant to the quality of life and is a fundamental element
in the ability of men and women to live freely and independently as human
beings (Boris Begovic, 2012).

Over conceptualisation,
economic presentation is determined by on
many features of state policy, but the
most essential part is still democratic institutions.
Empirically, modifications in institutions
are recognised to be one of the most important elements of
economic growth. This view, which is a good basis for recent empirical research
on economic growth, is a key issue of the economic freedom index.

How Democracy Effects On
Growth?

Democracy will in the
long term lead to rise in economic growth, for the reason
that democracies have permanent and expectable institutions
and tend to provide policies for private firms. Although democracies
are more likely to participate in large-scale distribution on a larger
scale than governments, the effect is the sustainability of the
redistribution of the fact that democracies impede entry, promote competition
and innovation.

The relationship between
democracy and economic growth has led to
many deliberations; thewelfares of democracy are ability
to recover the reliability and predictability of
institutions that produces a structure for the
business environment. 

The economic growth
is established on the massive numeral of mutually
independent outcomesprepared by a huge number
of capitalists on how to invest
their investment and workforce in different commercial accomplishments.
The incentives that affect investment resolutions are
very significant to describe the
growth method. These reasons are shaped by
economic institutions, particularly those that
are connected to the total and
effective security of private property rights and unlimited economic
freedom. The improved the protection of private property rights,
the upper the predictable returns on investment. More economic
freedom creates more prospects for discussion and
more rivalry. Freer competition makes competitive force,
which is an operativemotivation for economic productivity,
which donates to enhanced growth. 

Private property rights can
be disrupted by private marauders or marauders in
the government sector. Moreover, Public sector damages of
private property rights can be illegal, such as legitimate and corruption. Destruction of
property rights by the public sector can be more disturbing to growth
than private predation. Therefore, the government’s priority should be
to defend private property rights from any breach. 

 

 

Government response to
people with a role Citizens’ active contribution in civil liberties
is potential in politics, enchanting into account
all partialities and interests, political or economic. Now,
we want to discover how democracy impact on growth.

Political stability and
predictability

Democracy prepares political
stability and enhancement predictable, though constitutional and
executive circumstances are restricted by general
elections, the timing of the political process is quite different,
unlike the self-employed. The democracy of the polar societies is
lower for the reason that, among other
things everybody can without restrictions express his own
political interest. Free expression of political preferences in the long run,
democracies tend to produce a defensible environment and
positive incentives for investment, innovation and growth.  

 

Investing in human capital

Investing in human capital
is significant for growth, because there is an accumulation of
more elements of invention and
more labour productivity. These investments have two parts,
first one is the investment of individuals from time
and strength to develop their human capital and
the other is to participate in
additional capitals required for the progression. Public spending on
education and healthcare solves these kinds
of liquidness restrictions. Then democracies from the
entire population, not just elites are expected to make public
investment in human capital in democracies more attractive than autocratic
governments.

 

Rule of law

Protection of private
property rights for growth is valuable. Also, investments individual take
place if private property rights are secure, as investors
are ready for avoiding their return on investment,
and intellectual property protection for investment in research and
development is a major foundation of technological progress. As
a final point, global protection of contractual rights strengthens
and inspires the interchange of markets, and this intensive
exchange, solidercompetitive pressure, and motivation for
economic efficiency. Hence, rule of law makes both economic growths through mechanisms:
the increase of aspects of
production concludedinvestment and the increase of
TFP. Making and keeping the rule of law
is perhaps the principalimprovement of democracy
in relationships of economic growth. Democratic governments
are responsible to the people and they prepare universal protection
of private poverty rights.

Causality level of
development

According
to causality, main topic is created on
the foundation of the middle class and the formation of
civil society systems that are independent of the state public life
that the government cannot become controller. Moreover,
proliferation in human capital and education, people who
are educated are unlikely to achieve authoritarian
rule. Furthermore, absolutismscountries are not fast growing in the
long-time; economic growth carries out sources of death
on dictatorial regimes. Also, it
is vital to reminder that democracy at a higher
level can remain extradomineering for economic growth.
This outline is clarified by the detections that
the foundationsof economic growth are moving with
the amount of economic development. Reserve of
production aspects at a lower level is very essential; on
the other hand the total factor productivity at a higher
level is significant, mostly remaining to
technological development. Technological and innovation are dynamic
in new entrances, and democracies are enhancedfalling barriers
to access to contrast autocracy states.

 

 

 

 

METHODOLOGY

Measurement

This paper prepares examination of the relationship
between democracy and economic growth %. The analysis takes 147 countries as
sample, with data from Quality of Government Standard dataset codebook. We also
analyze data from economic institutions for the measure of growth %. 

According to the literature, there is indication for the
relationship between democracy and economic growth.
The approximation of this relationship indicates that the level of
democracy can move from lower to higher level of democracy. Using democracy
measure, it indicates that democracy increases the probability of growth %. The
results in multiple regressions will include other controlling
variables as well. 

As point out before, our sample in which data
can be
present obtainable to discover data involvesof 147
countries; and we usage the time era protected 2003 to
2008. In the analysis we use basesof data from Freedom House and polity
(Djankov et al., 2007). These data make available the score
between 0-10 scales. Zero exemplifies lower level
of democracy and 10 show higher level of democracy.
According to the study we shown, the score of democracy from
Polity are established on annual foundations; but over
sample era there is tiny time variation. Therefore, we usage scores
that we create for the year 2003 for making democracy
measure. This is coded as 1 for a country with high level of democracy, and 0
for countries with low level of democracy.

For dependent variable we use growth % for its measurement.
Economic growth, nonetheless, mentions to
the affirmative variation in the production of goods and
services in an economy over a given period, generally a long period.
In preparation, the most exercise indicator to measure it is
gross domestic product (GDP). GDP is the rate of all goods and
services manufactured in the country for the duration of a
year, encompassing by foreign companies (Robert Solow, 1924).

 

Control Variables

I take care of control variables to prevent their
theoretical effect on dependent variable.

Firstly, we control Human Development Indicator (HDI) that pursues to explanation for
human development. It associates three standards:
the endurance of the people, the level of education and the
level of wealth. The HDI illustrations very big transformations between
countries, like the level of countries affording to their
GNP per capita. However, there is no systematic connection between
income level and human development. The standard of living measured by GNI per
capita is an normal revenue and it so creates it potential to amount what
an normalperson can consume to content his
material requirements (to feed himself, to clothe himself, etc.). A
high average income can hide high variations and hence,
not truthfully return the standard of living of the population:
a lesser portion of the population can very much obtain a
large percentage of revenue. Second, how
this upsurge in GDP per capita may as
well have tookargumentative effects on the population or
at smallest amount several of them. Creating extra can remain completed by expending more
than rationally energy and rare resources.
The determination of the HDI is to measure the level of
human development in a country, in logic the level of well-being
of the population. If it does not receipt into interpretation the difficulties of unfairness and
environment, it is more qualitative than the simple
GDP/capita. Consequently, the quality of democracy
is improved in countries where income is higher, because these
countries may have recovering capacity
for improvement to patterned and stability on the
government that avoid the practice of policies.

Secondly, the literature shows that human capital and
economic growth have a robustrelationship. Human capital
has emotional impact on economic growth and
it mentions to the knowledge, skill sets and inspiration that
people have, which provide economic value. This can be measured by Human
Capital Index/Investment (output-cost-income-based/school enrollment rates).
Data from Human Capital Index are measured by diverse scales.
But the greateststandardized data are coded from 0-1; in which 1 is
standard capital and zero else. 

Third, it has been demonstrated that political instability has an
impact on economic growth. This effect remains great when we narrow regime type
or regime change. Unstable political regime, however, can diminish the speed of
economic growth and investment (Palau-Country Review, 2017). This is
measured by political Risk Index that detentions the level
of risk pretended by government and investors created on
economic features; and its scale varies from 0-10. Zero indicates high
political risk and 10 show lower political risk.

The literature demonstrations that the effects of regime
type on economic growth have not recognized modifications in
average growth rates between absolutism and democracies. There could
still remain alteration in the variances.
Democracy indicates related controls on leaders and could
lead to similar economic presentation. Between autocracies,
constitutional and institutional limitations are likely to be
variable and frail. Furthermore, the personal inclinations of
autocrats may be more significant than the
personality alterations between democratic
leaders. Information from the 1960-1987 (Erich Weede, 1996)
period and scored from 0-10, prepare indication that there
is bigger variation in growth amounts between autocracies
than rate democracies. 

 

 

RESULTS

The table 1 shows the correlation -0,389, and the
p-value 0,000 (99%). This means that there is significant relationship between
democracy and growth.

 

 

 

Table1 : Correlation
between Index of Democracy and GDP Growth

 

 

Index of Democracy

GDP Growth (%)

Index of Democracy

Pearson Correlation

1

-,389**

 

Sig. (2-tailed)

 

,000

 

N

165

141

GDP Growth (%)

Pearson Correlation

-,389**

1

 

Sig. (2-tailed)

,000

 

 

N

141

162

**. Correlation is significant at the 0.01 level (2-tailed).

 

The graph 1 indicates to what extend is the relationship between
independent and dependent variables. The empirical analysis shows that when
democracy increases, GDP growth increases as well.

 

 

 

       
       Graph 1: Scatterplot Democracy to Growth

 

 

 

 

 

REGRESSION

Variables Entered/Removed

Model

Variables Entered

Variables Removed

Method

1

Regime Type, Human Capital Index, Political Stability, Level of
Democracy (Freedom House/Imputed Polity)a

.

Enter

a. All requested variables entered.

 

 

In the regression model (table 2), the result shows meaningful
relationship between democracy and growth with 99% level of confidence. 

 

 

 

 

 

                 
    Table 2: Regression between control and dependent variables

 

Model

UnstandardisedCoefficients

StandardisedCoefficients

t

Sig.

 

B

Std. Error

Beta

 

 

1

(Constant)

7,349

1,602

 

4,587

,000

 

Level of Democracy (Freedom House/Imputed Polity)

-,405

,175

-,329

-2,323

,022

 

Political Stability

-,594

,462

-,151

-1,284

,202

 

Human Capital Index

-,784

,579

-,148

-1,355

,178

 

Regime Type

,438

,381

,168

1,149

,253

a. Dependent Variable: GDP Growth (%)

 

After control variables’ analysis, the result shows the estimated
coefficient of -0,329 for level of democracy variable that is statistically
significant. 

By using 0-10 democracy scale, the relationship between democracy
and growth % is still significant (-0,329). This mean that from the lower
level to the higher level of democracy increases the probability of growth as
well.

 

 

CONCLUSION

The interaction between democracy and economic
growth embraces the impact of political freedom on the growth and
impact of living standards at the level of democracy. With esteem to the
definition of growth, analysis between
countries increases the anticipated effect
from sustaining the free market, rule of law, human capital
and low consumption of government. While these variables
and the primary level of GDP remain constant, the overall effect of democracy
is on negative growth. There are some indications of a non-linear relationship
in which democracy more likely to raise growth at a low level of
political freedom, but it reduces economic growth when it reaches an average level
of political freedom. With regard to the impact of economic development on
democracy, examination illustrations that the progress of
living – measured by a
country’s real GDP , significantly increasing the
likelihood that political institutions will become more democratic over time.
Hence, political freedom seems to be a luxury, they will enjoy more democratic
places, because this is in the best interest, and even if increased political
freedom may have a negative impact on growth. In fact, rich countries
can be responsible for a cutback in economic progress.

There are strong rules in the relationship between
democracy and economic growth. However, the causal mechanisms are complex,
overlapping, and sometimes with balanced effects. There is no simple rule and
no direct conclusion. In some cases, democracy has been shown to even be
detrimental to economic
growth, specifically as esteems the restructuring of
compulsory income, and independent states can efficiently reject this
political pressure. This theory is established by swift growth periods in
independent countries.Though democracy
in universal is valuable for economic growth, it is
a solution that treats miraculously poverty and creates societies flourishing.
These are long-term results. More democracy motivations on the
provision of the rule of law and effectively allocates political
pressure for restructuring, and the consequences of economic
growth will be better.

 

 

Author