The Relationship between Economic Growth and Democracy: Alternative Representations of Technological Change

39 Pages Posted: 31 Jul 2017

See all articles by Almas Heshmati

Almas Heshmati

Sogang University; Jönköping International Business School

Nam-Seok Kim

Sogang University

Abstract

This study investigates the relationship between economic growth and democracy by estimating a nation's production function specified as static and dynamic models using panel data. In estimating the production function, it applies a single time trend, multiple time trends and the general index formulations to the translog production function to capture time effects representing technological changes of unknown forms. In addition to the unknown forms, implementing the technology shifters model enabled this study to find possible known channels between economic growth and democracy. Empirical results based on a panel data of 144 countries observed for 1980–2014 show that democracy had a robust positive impact on economic growth. Credit guarantee is one of the most significant positive links between economic growth and democracy. The marginal effects of credit guarantee and foreign direct investment inflows are stronger in democratic countries than they are in non-democratic ones. In order to check the robustness of these results, a dynamic model constructed with a flexible adjustment speed and a target level of GDP is also tested. The results of this dynamic model also support the positive impacts of democracy on economic growth.

Keywords: economic growth, democracy, production function, single time trend, multiple time trends, general index, technology shifters, flexible adjustment speed, target level of GDP

JEL Classification: D24, O43, O47, P16

Suggested Citation

Heshmati, Almas and Kim, Nam-Seok, The Relationship between Economic Growth and Democracy: Alternative Representations of Technological Change. IZA Discussion Paper No. 10880, Available at SSRN: https://ssrn.com/abstract=3010657 or http://dx.doi.org/10.2139/ssrn.3010657

Almas Heshmati (Contact Author)

Sogang University ( email )

Seoul 121-742
Korea, Republic of (South Korea)
0082-2-705-8771 (Phone)

HOME PAGE: http://www.sogang.ac.kr/english/academic/03_under_0123.html

Jönköping International Business School ( email )

Jönköping, 551 11
Sweden

Nam-Seok Kim

Sogang University

Seoul 121-742
Korea, Republic of (South Korea)

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