The paper tests the hypothesis of a positive impact of democratization on growth and
economic development in the sense of capabilities and improvements 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
political institutions (democracy), economic institutions and efficiency of financial
management, along with more "traditional" factors. The empirical findings support the
hypothesis of 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 decisions.
1
|