Economic Growth

and
Democracy

Agenda
Economic and political freedoms
Effects of autocracy on growth
Impact of growth on democracy
Lipset Hypothesis prosperity
tends to inspire democracy
Barros study Gastil concept of
political rights
Connie CHUNG

Objectives
What is the net effect of democracy
on growth?
Do you think the autocratic regime
of China can survive in the face of
continued economic growth?
Why should the advanced western
countries not try to impose their
own political systems upon the
poor countries?
Connie CHUNG

Freedom House
Freedom In The World 2015
(www.freedomhouse.org)

State of freedom (annual report on the condition of political

rights and civil liberties) in 195 nations
More aggressive tactics by authoritarian regimes and an
upsurge in terrorist attacks contributed to a disturbing
decline in global freedom in 2014
Of the 195 countries assessed, 89 (46 percent) were rated
Free, 55 (28 percent) Partly Free, and 51 (26 percent) Not
Free.
A troubling number of large, economically powerful, or
regionally influential countries moved backward:
Azerbaijan, Egypt, Kenya, Nigeria, Russia, Thailand, Turkey,
and Venezuela.
Continuing a recent trend, the worst reversals affected
freedom of expression, civil society, and the rule of law.

Connie CHUNG

Freedom House
Freedom In The World 2015
In a new and disquieting development, a
number of countries lost ground due to state
surveillance, restrictions on internet
communications, and curbs on personal
autonomy.
Ratings for the Middle East and North Africa
region were the worst in the world, followed by
Eurasia. Syria, a dictatorship mired in civil war
and ethnic division and facing uncontrolled
terrorism, received the lowest Freedom in the
World score of any country in over a decade.
Connie CHUNG

Democracy and growth China

China experienced one of the highest rates of
economic growth over the past three decades It
is also not a democracy
1989 authorities brutally crushed a political
demonstration in Tiananmen Square, and years
later dissidents and even religious protestors were
still mercilessly punished for the mere act of
expressing their opinions in public there are no
signs of impending collapse of the communist
government until today, though most economists
predict robust growth for China for years to come
Do you think the autocratic regime of China can
survive in the face of continued economic growth?
Connie CHUNG

Connie CHUNG

Arab Spring protests in the

Middle East (early 2011)
Anti-government activists' use of
technology
Tunisia: ousted President Zine el-Abidine Ben Ali
from power (fled to Saudi Arabia), ending his
autocratic rule (23 years)
o demanding justice for relatives killed by his regime
o protests aided by Facebook, Tweeter
Eygpt: ousted President Hosni Mubarak (30 years)
and transition to democracy
o government moved to cut internet access, disable
text messaging services and disrupt cellphone
networks

Connie CHUNG

 in the Middle East

Yemen: demanded President Ali Abdullah Saleh (30
years) to step down
o one of the poorest and most heavily armed countries in
the Middle East, is home to multiple separatist movements
and has its own particularly virulent branch of al-Qaeda
o many of the diseases that exist in the Arab world exist in
Yemen, from tribalism to poverty to corruption

Countries have been under autocratic rule

for decades, and are virtually devoid of the
traditions, experience and political
infrastructure on which to build stable new
governments

Connie CHUNG

Tunisia under Ben Ali

(Source: Washington Post Foreign Service, 24/01/2011)

Under Ben Ali, Tunisia was perceived by the West as a model

nation in the Arab world - moderate, relatively prosperous and
secular. The autocratic leader, who seized power in 1987,
stamped down on Islamic radicalism; he was a U.S. ally in the war
against terrorism in a region where al-Qaeda was making inroads.
Ben Ali also lorded over a landscape of repression and
corruption. Journalists were censored, harassed and monitored by
his intelligence service. Critical voices were silenced.
His family owned more than half the companies in Tunisia,
including banks, hotels and real estate development firms. Bribes
and good ties with the government were the route to jobs and
promotions.
In the streets, shops and offices, Ben Ali's photos were everywhere,
as were the secret police.

Connie CHUNG

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Political and economic freedoms

Economic freedom usually believed to promote
growth
The connection between political and
economic freedom is controversial
Milton Friedman argues that the two freedoms
are mutually reinforcing
an expansion of political rights
fosters more democracy fosters
economic rights and tends
thereby to stimulate growth
Connie CHUNG

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.. we do not know whether democracy

fosters or hinders economic growth

Concluded by Przeworski, Adam and

Limongi, Fernando (1993), on the
basis of their theoretical arguments and
statistical studies (Political Regimes
and Economic Growth)
They argue that it is not at all clear if
democracy, with its slow
empowerment of the less wealthy,
secures growth-fostering capitalist
property rights better than
dictatorships
Connie CHUNG

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.. we do not know whether democracy

fosters or hinders economic growth

Democracies may actually be more

susceptible to pressures for
immediate consumption (and may
involve rich-to-poor redistribution of
income including land reforms) and other
particularistic demands (enhanced role
of interest groups in systems with
representative legislatures) that may
hamper long-run investment

Connie CHUNG

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Authoritarian regimes
Nothing in principle prevents nondemocratic governments from
maintaining economic freedom and
private property
Examples of autocracies that
have expanded economic
freedom the Pinochet
government in Chile, the Fujimori
administration in Peru, and several
previous and current regimes in
East Asian miracle economies
Connie CHUNG

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Authoritarian regimes
China experienced one of the
fastest rates of economic growth in
recent decades and it is not a
democracy
Most OECD countries began their
modern economic development in
systems with limited political
rights and became full-fledged
representative democracies only
much later
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Effects of autocracy on growth

Can however be adverse if a dictator
uses his power to steal the nations wealth
and to carry out nonproductive
investments
Many governments in Africa, Latin
America, former planned economies in
Eastern Europe, the Marcos
administration in the Philippines, and
the Suharto administration (crony
capitalism) in Indonesia seem to fit this
pattern
Connie CHUNG

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Democratic institutions
Provide a check on governmental power and
thereby limit the potential of public officials to
amass personal wealth and to carry out unpopular
policies
Since at least some policies that stimulate growth
will also be politically popular, more political
rights tend to be growth-enhancing on this
count
Thus the net effect of democracy on growth is
theoretically inconclusive (as mentioned earlier
that democracy does have drawbacks)
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Lipset Hypothesis
A common view, often called Lipset Hypothesis,
is that prosperity (increases in living standards)
tends to inspire democracy
At the same time, democracies that arise
without prior economic development may
not last long
A number of Asian tigers (eg. Taiwan, South
Korea) have moved towards democracy
Will China do the same as rapid growth
progresses? What about Vietnam? Russia?

Connie CHUNG

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Barro, Robert J. (1996)

Democracy: A Recipe for Growth?
Applied regression analysis to study the
relationship between growth and its various
determinants that include democracy and he
used data for roughly 100 countries for the
period 1960-1990
The cross-country analysis suggests that there
are positive effects on growth from the
maintenance of rule of law

free markets
small government consumption
high human capital
Connie CHUNG

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The Gastil concept of political rights

Democracy in the Barros study is measured by
the Gastil concept of political rights ie.
rights to participate meaningfully in the political
process
rights of adults to vote and compete for public
offices and
o for elected representatives to have decisive roles on
public policies
o

The countries that have dominant political

parties are considered less democratic and the
index is scaled from 0 (fewest political rights) to
1(most political rights)
Connie CHUNG

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Inverse U-shape
between growth and democracy
Results tentatively indicate that more
democracy raises growth when
political freedoms are weak but
depresses growth when a moderate
amount of freedom is already
established
Inverse U-shape in the plot
between growth rate and democracy
Connie CHUNG

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Question
Democracy in the Barros study is
measured by the Gastil concept of
political rights, that is, having the
rights to participate meaningfully in
the political process. His analysis
highlights that countries which have
dominant political parties are
considered less democratic. How does
the study apply to the situation in
your country?
Connie CHUNG

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Is democracy sustainable
with low growth?
Cross-country data suggests that countries
at low levels of economic development
typically do not sustain democracy

political freedoms in many newly

independent African states in early 1960s
did not last long

Conversely, non-democratic countries

that experienced substantial economic
development have a tendency to become
more democratic (eg. Chile, South Korea,
Portugal, Spain, and Taiwan)
Connie CHUNG

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Democracy and Reforms

Amin, Mohammad; Djankov, Simeon. 2009. Democracy and

Reforms. World Bank. World Bank.
https://openknowledge.worldbank.org/handle/10986/4031
The authors use a sample of 147 countries to investigate the
link between democracy and reforms. Democracy may be
conducive to reforms, because politicians have the incentive to
embrace growth-enhancing reforms to win elections. By contrast,
authoritarian regimes do not have to worry as much about
public opinion and may undertake reforms that are painful in the
short run but bring future prosperity. This paper tests these
hypotheses, using data on micro-economic reforms from the
World Bank's Doing Business database. The results provide
robust support for the claim that democracy is good for
growth-enhancing reforms.

Connie CHUNG

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Democracy, Market Economics

and Development:
An Asian Perspective
Igbal, Farrukh; You, Jong-Il. 2001. Democracy,
Market Economics and Development : An Asian
Perspective. Washington, DC: World Bank. World
Bank.
https://openknowledge.worldbank.org/handle/10986/1
3904
While it is widely accepted that economic freedom,
as ensured broadly by the operation of the economy
according to market, or laissez-faire principles, is a
critical determinant of development, the role of
political freedom, as ensured broadly by the
practice of democracy, is less well understood.
Connie CHUNG

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Democracy, Market Economics

and Development:
An Asian Perspective
The papers focus largely on the experience of East
Asia in recent years, featuring: democracy and the
market economy, emphasizing both politics, and
economics as essential to improve the lives of
citizens; democracy and social justice, as intrinsic to
development, arguing that rights and liberties are best
conveyed by the democratic system of governance;
participation, as fundamental to democracy and
development, for it is the practice of democracy that
is most critical to the long-term sustainability of
development;
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Democracy, Market Economics

and Development:
An Asian Perspective
liberal participatory democracy, as instrumental to
produce sustainable economic reforms, by ensuring the
legitimacy of reform efforts. Notably, the preconditions
that participatory democracy requires in order to
fully support reforms, are discussed, with supporting
evidence from experiences in Latin America, and
Asia; and,
political and economic institutions of Asia, and the
West, as set to converge, despite inconclusive debates
on Asian values.

Connie CHUNG

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Conclusion
The advanced western countries
should not try to impose their own
political systems upon the poor
countries
They should rather try to export
economic freedom (property rights
and free markets) as democracy will
expand automatically after a reasonable
degree of living standards are being
achieved
Connie CHUNG

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References
Amin, Mohammad and Djankov, Simeon
(2009). Democracy and Reforms. World
Bank. World Bank.
https://openknowledge.worldbank.org/handl
e/10986/4031
Barro, R.J. (1996).Democracy: A Recipe for
growth? In M G Quibria & M Dowling (eds.),
Current Issues in Economic Development: An
Asian Perspective, Hong Kong; New York:
Published for the Asian Development Bank by
Oxford University Press
Calvert, Peter and Calvert, Susan (2007).
Politics and Society in the Developing World,
Pearson Education Ltd.
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References
Igbal, Farrukh and You, Jong-Il (2001).
Democracy, Market Economics and
Development: An Asian Perspective.
Washington, DC: World Bank. World
Bank.
https://openknowledge.worldbank.org/han
dle/10986/13904
Przeworski, Adam and Limongi,
Fernando (1993). Political Regimes and
Economic Growth, Journal of Economic
Perspectives, Vol. 7, No.3, Summer, pp 5169
World Bank (2002). Building Institutions
for Markets, World Development Report

Connie CHUNG

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