The relationship between democracy and economic growth

The Relationship Between Democracy and Economic Growth

Does such a relationship exist? If it does, what is the nature of this relationship and how can one justify it? Intuitively speaking, one would expect a better economic growth during democratic regimes as opposed to military (dictatorship) regimes. The democratic regimes have many incentives to work towards economics growth, the main incentive being winning the next elections. For, military regimes this incentive is not applicable. For democratic regimes there is accountability for corruption due to transparency, free press, and opposition forces. In the case of Sudan, democratic governments have always been coalition governments (two or more parties) and they were short-lived. As such, there has been always a lag in implementing development projects. These lags result from opposing views and or political gains within the government and also the time it takes for the parliament to approve the projects. Despite all these, it is interesting to notice that the average growth during the last democratic regime was much higher than the average growth rate during the regimes before and after (May and June military regimes). These observations are based on the data published by the International Monetary Fund (IMF) for the period 1971-2004. I looked at the average Gross Domestic Product (GDP) annual percent change at the constant price for the periods 1971-1985, 1986-1988, and 1989-2004. These periods represent Nimiri’s regime, Elsadig Elmahdi’s regime, and Elbasheer regime. Here the findings:

Average annual GDP percentage change for 1971-1985 = 2.94 %
Average annual GDP percentage change for 1986-1988 = 6.93 %
Average annual GDP percentage change for 1989-2005 = 4.63 %

If we take the two military regimes together, the average growth rate becomes 3.79%.
It is also interesting to notice that the highest annual growth rates during the entire period 1971-2004 were 15.7%, 12.5% and 9.9% and these occurred in 1976, 1974 and 1986 respectively. The highest growth rate during the current regime was 9.3%.

Despite the fact that the democratic regime lasted only three years and the other two regimes lasted over 10 years each during the period of our analysis, we see that the overall growth rate was higher in the democratic era. In order to make apple to apple comparison in terms of the period, I take the last 3 years of Nimeri’s regime and the first three years of Elbashir’s regime. I exclude the year 1985 in which there was a transitional government. Here is what I see:

Average annual GDP percentage change for 1982-1984 = -1.0 %
Average annual GDP percentage change for 1986-1988 = 6.93 %
Average annual GDP percentage change for 1989-1991 = 3.10 %

For these periods the average inflation rates were as follows:

Average inflation rate for 1982-1984 = 30.3 %
Average inflation rate for 1986-1988 = 49.8 %
Average inflation rate for 1989-1991 = 84.7 %

Unfortunately, there is no data for the earlier periods in order to include earlier democratic eras. Therefore, I can not claim that these observations provide a conclusive evidence that there is a positive relationship between democracy and economic growth.


Data source: IMF - The World Economic Outlook (WEO) Database April 2003.

the key word is political stability and flexable investment regulations

Well, my knowledge about the economy is scanty. But here are some thoughts:

I do not think there is any direct relationship between democray and economic growth. There are a lot of living examples that testify to this. The rich Gulf countries represent examples where economic growth is independent of democracy. Despite the autocratic and despotic governance systems these countries have, they attained high economic growth rates; judging from the indicators of human development reports. Whether this type of growth is sustainable or not is of course debatable. I do believe, aka one of the posters, that political stability and favourable investiment conditions are the crucial factors in economic growth. I might have been off point, but I said my understanding of economic matters is fuzzy!

Salam Munzoul:
Thanks for your comments.
I did not really establish a relationship between democracy and economic growth. I reported some observations based on the data available for that period. While it is true that democracy is valuable in its own right, I do not believe that democracy or political freedom by itself can bring about prosperity. The political freedom must be coupled by economic freedom. There are quite a few studies showing the relationship between economic freedom and growth. In other words, economic freedom leads to economic growth. For the case of the Gulf countries, it is essential to distinguish between oil and non-oil growth. For Saudi Arabia for example, I know there has been economic reforms that led to the growth of non-oil sector. As for the political stability, I hold the view that a real sustainable democracy should lead to political stability.

Dear Ibrahim:
Thanks for stopping by. I agree with you. Wouldn't you also agree that a true sustainable democracy will lead to political stability?!

Dear Mohammed,Sabah al khair..
Other conributors, my regards..


Economic growth as you rightly put it, cannot be accomplished without stability. Which cannot be attained without the real participation of our people in the way their future is formed. Democracy is definitely an important factor to attain equitable distribution of resources, political rights, through a form of governance where people feel truly that they are part of the decision making process, and feel their influence in deciding who controls their lives. With democracy come so many values including among others; transparency, accountability, and ethics. Those who are not able to play it the people’s way, normally look for another economic activity for earning a living, instead of ripping off the bread from the mouth of our children.
Economic development can be achieved without demogracy, like a house that can be built without the active invlovement of its owner, but we can always notice the differnece between the two houses..

Although I do not believe there has been a proven link between democracy and economic stability, more non-democratic countries are failing to develop economically than democratic countries. This is despite much of Western Europe, and countries such as Taiwan and Indonesia intially developing economically and then focusing on democracy.
I think the person who discovers how to develop economically and/or economically will become a very rich man (or woman!)

Thanks Klayre:
As far as I know, no one has established a relationship between democracy and economic growth as of yet. The relationship between economic freedom and economic growth is well-established though. I think all humans should enjoy democracy as a system of government.
Regards,

Thanks Omer.
I couldn't agree less with you.
The economic growth without democracy is tasteless.
From previous experiences, Sudanese people tend to get bored of democracy rather quickly due to the political fueds that exist among ruling parties. As such, people do not stand ready to defend the democracies. I believe we should give our democracy a chance to florish. Only sustained democracy can eliminate the shortcomings that come along with it.