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Democracy and Economic Growth in an Interdependent World

Authors


  • We thank two anonymous referees and participants of the “International Political Economy and Cross-Border Effects” workshop at Queen Mary, University of London, and “7th Annual Conference on Economic Growth and Development”, Indian Statistical Institute, New Delhi, for insightful comments. The usual disclaimer applies.

Abstract

We model dynamic interdependence in cross-country economic growth processes by allowing it to vary according to democratic distance among economies. Stochastic distributional dynamics and temporal effects of democracy on economic growth are studied, and spatial variation in economic growth is explored. Among important results, democratic poverty trap is found to exist indicating the possibility of persistence of (un)stable democratic equilibria at different levels of democracy. Our cross-sectional regression evinces that democracy has exerted significant growth-enhancing effect and that the democratic distribution has steadily shifted locus from low-level to high-level equilibrium. Our spatial analysis of democracy-economic growth nexus provide evidence of significant dynamic spatial autocorrelation and complementarity among countries' growth processes. Finally, it is demonstrated that the relevance of geographical proximity in facilitating interdependence in economic growth is overshadowed by relational proximity.

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