Democracy and Growth Reconsidered: Why Economic Performance of New Democracies is Not Encouraging
Central Economics and Mathematics Institute, RAS
New Economic School (NES)
New Economic School Working Paper
There are two innovations as compared to the previous literature on democratization and growth. First, not only the level of democracy is taken into account, but also changes in this level in the 1970s-1990s as measured by the political rights indices of the Freedom House. Second, the distinction is made between the rule of law and democracy, the rule of law being defined as the ability to ensure order based on legal rules; it is measured by the rule of law, investors’ risk and corruption indices. It is found that democratization in countries with strong rule of law (liberal democracies) stimulates economic growth, whereas in countries with poor rule of law (illiberal democracies) democratization undermines growth. In illiberal democracies institutions are weaker, shadow economy is larger and macroeconomic policy is less prudent.
Number of Pages in PDF File: 34
Keywords: economic growth, democracy, rule of law
JEL Classification: P16working papers series
Date posted: February 7, 2011
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