Democracy and Growth

In this article, Barro examines the relationship between democracy and economic development.  He determines that the west can contribute to the prosperity of developing states by exporting their economic systems rather than political systems.  History shows the west has often imposed political systems on developing states in an attempt to encourage economic growth, however this has been typically unsuccessful.  Barro identifies that political systems in developing states usually develop after a reasonable standard of living is attained. 

Barro acknowledges the effect of democracy on growth is ambiguous. He notes that in Capital and Freedom, Friedman argues that ‘political and economic freedoms are mutually reinforcing’ and that more democracy will encourage economic right and stimulate growth.  However, Barro also acknowledges ‘growth retarding’ features of democracy.  These include social programs that redistribute income from the rich to the poor or where interest groups redistribute resource that favor themselves.  Barro event identifies authoritarian regimes that have modern economic development in systems of limited political rights and sites examples of dictators using their power incorrectly resulting in adverse effects of growth.  He concludes that economic outcomes in such authoritarian regimes are uncertain at best.

A common viewpoint is that prosperity tends to inspire democracy and although this ‘Lipset hypothesis’ lacks theoretically foundation, there are many case studies to support this.  In examining the interaction between economic growth and democracy from 1960 to 1990, it was found that the higher the human capital of the country, (in health and education, a lower fertility rate and less government spending on consumption) the higher the states growth rate.  Examples of states with high growth rates during this period are some of the East Asian countries including Hong Kong, Singapore, Taiwan and Malaysia. 

In addition, Barro acknowledges states with higher standards of living, measured by real capita GDP, infant mortality, male and female schooling tend to approach higher levels of democracy over time.  This also can explain while countries with low levels of development typically do not sustain democracy – as can be seen in sub-Saharan Africa today.

Barro acknowledges that there have been lessons in the west exporting their democratic processes to developing states.  He identifies that democracy is not the key to economic growth, although acknowledges that this can be beneficial for countries with few political rights.    He also identifies that political freedoms will diminish over time if economic growth gets out of line with the states standard of living.  

In summary, if economic freedom can be established in a developing state, then growth would be encouraged and over time we would see the state becoming more democratic in its own right.

Reference:

Barro, R.J. 1996, “Democracy and Growth”, Journal of Economic Growth, 1, pp. 92-98. 

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