18 January 2019

Research pick: Democracy and development - "Democracy and economic growth"

Does the emergence of national democracy lead to economic wealth? Researchers in Hong Kong and the UK suggest that the face pace of change in a new democracy actually leads to detrimental effects initially to a country’s macro-economy. However, if the state reaches the well-developed stage, then ultimately it will become democratised without external pressure.

Writing in the International Journal of Data Analysis Techniques and Strategies, Rita Yi Man Li and Edward Chi Ho Tang in the Department of Economics and Finance, at Hong Kong Shue Yan University, and Tat Ho Leung in the School of Environment, Education and Development, at the University of Manchester, UK, explain how they have carried out research on 167 countries. They used the democracy index, corruption perception index, inflation, population, number of internet users, the balance of trade, foreign direct investment, and other factors to determine democratic state and national wealth. They also included sub-indices such as the electoral process and pluralism, functioning of government, political participation, culture, and civil liberties, to ensure they got a clear picture of each country’s specific level of democracy.

The received wisdom always seemed to suggest that democratization leads to economic growth. The fall of the Berlin Wall and the demise of the Soviet Union are often cited in such discussions. But, the flip side of this is the examples of China and Singapore, which are not considered democratic nations in the “Western” sense where economic freedom and equality do not prevail. It seems apparent that an electoral system leads to the establishment and protection of personal rights and private property, which are often precluded in the non-democratic nation. However, the team has found that with the assistance of the political sector, the economic sector cannot perform at as high a level as it otherwise might and so it is demonstrable that the emergence of democracy can slow economic growth indirectly for a short period at least until it is well established and a nation “developed”.

Li, R.Y.M., Tang, E.C.H. and Leung, T.H. (2019) ‘Democracy and economic growth’, Int. J. Data Analysis Techniques and Strategies, Vol. 11, No. 1, pp.58–80.
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