Democracy's Unique Advantage in Promoting Economic Growth: Quantitative Evidences for a New Institutional Theory

Kyklos, Vol. 71, No. 4, Nov. 2018

57 Pages Posted: 26 May 2018

See all articles by Rui Tang

Rui Tang

National University of Singapore, Department of Economics

Shiping Tang

Fudan University - School of International Relations and Public Affairs (SIRPA)

Date Written: May 15, 2018

Abstract

Bringing together the classic defense of liberty and democracy, the political economy of hierarchy, endogenous growth theory, and the new institutional economics on growth, we propose a new institutional theory that identifies democracy’s unique advantage in prompting economic growth. We contend that the channel of liberty-to-innovation is the most critical channel in which democracy holds a unique advantage over autocracy in promoting growth, especially during the stage of growth via innovation. Our theory thus predicts that democracy holds a positive but indirect effect upon growth via the channel of liberty-to-innovation, conditioned by the level of economic development. We then present quantitative evidence for our theory. To our best knowledge, we are the first to propose such an indirect and conditional effect of democracy upon economic development and provide systematic evidences. Our study promises to integrate and reconcile many seemingly unrelated and often contradictory theories and evidence regarding regime and growth, including providing a possible explanation for the inconclusive results from regressing overall regime score against the rate of economic growth or change in level of GDP per capita.

Keywords: Hierarchy; Liberty; Democracy; Innovation; Growth

JEL Classification: O10, O11, O43, B15

Suggested Citation

Tang, Rui and Tang, Shiping, Democracy's Unique Advantage in Promoting Economic Growth: Quantitative Evidences for a New Institutional Theory (May 15, 2018). Kyklos, Vol. 71, No. 4, Nov. 2018, Available at SSRN: https://ssrn.com/abstract=3179293

Rui Tang

National University of Singapore, Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

Shiping Tang (Contact Author)

Fudan University - School of International Relations and Public Affairs (SIRPA) ( email )

220 Handan Road
Shanghai, 200433
China

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