Democracy, Political Competition and Economic Growth

Abstract

Democracy can take different forms and expressions among cultures and societies around the world, and, therefore, it can be characterised by different degrees. Accordingly, we asked how the degree of democracy affects economic growth. We choose the degree of political competitiveness among political parties as measure of the degree of democracy. We estimates cross-country panel data non-linear empirical growth model, taking into account the endogeneity of political competition through a new instrumental variable. The relationship between political competition and growth appears as an inverted U, and it is robust to the use of different political competition measures and to the short and long run analysis. This result allows us to calculate an ‘optimal’ level of political competition that maximises economic growth, which corresponds to a sufficient level of competition in the political vote market. We believe that this result emerges from the trade-offs generated by the various channels through which different levels of democracy (as those of political competition) affect growth. Copyright © 2016 John Wiley & Sons, Ltd.