Pakistan Institute of Development Economics

P & R Vol.1 Issue 3
The Inter-Linkages between Democracy and Per Capita GDP Growth: A Cross Country Analysis
Publication Year : 2020

This study is an attempt to answer the question that captivates the minds of all political economists, “Is it polity with more political rights and civil liberties that leads to economic growth or is it the reverse phenomenon of economic growth leading to democracy that holds empirically?” The empirical growth literature gives no clear indication as to how democracy impacts economic growth despite having the moral high ground and as a system of governance is much superior to an authoritarian regime. That is, there is evidence of both positive and negative effects and also of no direct link in democracy and growth nexus. Therefore, this study an attempt resolve this controversy by putting this question in a dynamic simultaneous equation framework that combines in a system the regression in differences with regression in levels applied on a cross county data set over the period 1987-2002 for 73 developed and developing countries. This type of modelling not only controls for the endogeneity of the explanatory variables and the unobserved country-specific effects but also allows to analyses the impact of democracy on per capita GDP growth and the reverse causation from per capita GDP growth on political and civil freedom simultaneously.