Free to Squander? Democracy, Institutional Design, and Economic Sustainability, 1975-2000

37 Pages Posted: 22 Dec 2004  

Indra De Soysa

Norwegian University of Science and Technology

Jennifer Bailey

Norwegian University of Science and Technology

Eric Neumayer

London School of Economics and Political Science (LSE)

Date Written: May 2005

Abstract

While democracy's effect on economic growth has come under intense empirical scrutiny, its effect on economic sustainability has been noticeably neglected. We assess the effects of regime type and democratic institutional design on economic, or "weak" sustainability. Sustainability requires that the total stock of aggregate capital does not depreciate in value over time. The World Bank gauges the rate of net investment in manufactured, human, and natural capital, a unified indicator of weak sustainability (the genuine savings rate). All four indicators of democracy we examine show that freer societies are more sustainable because they have higher levels of investment in human capital, create less CO2 damage per economic unit produced, and extract fewer natural resources in production, even if they show lower net investment in manufactured capital. Democracies may trade off immediate material welfare gains for future pay-offs. This finding justifies why scholars should assess the effects of regime type on more than just immediate growth, or the rate of change of manufactured capital. Among democracies, we find that mixed presidential-parliamentary systems exhibit a lower genuine savings rate than either of the pure systems. Proportional representation electoral systems fare worse than plurality when it comes to genuine and net national savings, even though they do better on education spending. The results taken together show that difference in regime type and democratic institutional design allow different trade-offs. The results are robust to a range of specifications and a developing country sub-sample.

Suggested Citation

De Soysa, Indra and Bailey, Jennifer and Neumayer, Eric, Free to Squander? Democracy, Institutional Design, and Economic Sustainability, 1975-2000 (May 2005). Available at SSRN: https://ssrn.com/abstract=632223 or http://dx.doi.org/10.2139/ssrn.632223

Indra De Soysa (Contact Author)

Norwegian University of Science and Technology ( email )

Trondheim NO-7491
Norway

Jennifer Bailey

Norwegian University of Science and Technology ( email )

Trondheim NO-7491
Norway

Eric Neumayer

London School of Economics and Political Science (LSE) ( email )

Houghton Street
WC2A 2AE London
United Kingdom
+44 207 955 7598 (Phone)
+44 207 955 7412 (Fax)

HOME PAGE: http://personal.lse.ac.uk/neumayer

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