Political Freedom, Corruption, Public Institutions, and Economic Growth: A Global Analysis Since the Fall of the Soviet Union

Abstract

Over the past few decades, the level of globalization and economic interdependence among nations has continued to rise. Given this rise of interdependence among nations one wonders whether or not political regime type has any influence on a country’s economic growth. Do democracies promote higher economic growth than non democracies? Or is regime type an irrelevant factor neither promoting nor hindering economic growth? If the effects of regime type on economic growth are not well understood, how can foreign policy makers seek to promote democracy throughout the world? The relationship between democracy and economic growth has been a hotly debated topic for many decades, but despite a sizable amount of theoretical and empirical literature there still has been contradictory conclusions drawn regarding the impact of democracy on economic growth.

In this paper, I explore the arguments concerning the positive and negative effects of political freedom on economic growth. Also, I explore the arguments put forth by some scholars that political freedom itself does not produce economic growth; rather, they argue it is other intervening variables that lead to economic growth. I address this complex relationship through the lens of Twenty-first Century Growth Theory and develop an operational model using a fixed-effects pooled cross-sectional times-series from 1990-2009. I find that political freedom, low levels of corruption, and the presence of quality institutions contribute to economic growth. Also, counter-intuitive to my expectations, I find that economic volatility contributes to economic growth, but in unexpected ways.

Keywords: Regime type, economic growth, public institutions, international political economy