CIRJE-F-326 | "Institutional and Financial Determinants of Development New Evidence from Advanced and Emerging Markets" |
Author Name | Chousa, Juan Pineiro, Haider A. Khan, Davit N. Melikyan and Artur Tamazian |
Date | March 2005 |
Full Paper | PDF file@ |
Remarks | @ |
Abstract |
The paper tests the democratization-development hypothesis, namely that democratization has a positive
impact on growth, economic development and changes in well-being. We employ a probit model to
estimate the probabilistic indicator for democracy for a large sample of countries. Panel regressions are
applied to explain the impact on growth of democratic political institutions, economic institutions and
efficiency of financial management, along with other more "traditional" factors. The empirical findings
support the hypothesis of the decisive role of democratic political and efficient economic institutions in
stimulating economic growth. The main results also highlight the importance of effective allocation of
financial resources. In addition to the growth regression results, it is argued, consistently with the
capabilities approach to development by Sen, that many of the explanatory variables in the growth
regression are positively related to development as capabilities enhancement. This is particularly true for
democratic freedoms. Finally the problem of 'optimal' institutional development is discussed within the
context of resource allocation, migration flows and political decision making. |