Abstract
Today it must be admitted that there is no significant connection between the level of development of democratic institutes and the value of economic growth. This conclusion invariably stems from the vast amount of theoretical and empirical studies that have been conducted over the last 50 years. Why have developed democracies become economic leaders? Why is the US economy growing faster than the economy in Angola, but slower than the economy in Botswana? There are still no answers to these seemingly simple questions. In this paper the author attempts to theoretically justify and empirically confirm the link between the democratic changes in countries and their economic growth. This link becomes apparent if we assume that the amount of transaction costs of exchange depends on the level of political and economic freedom. In turn, transaction costs have a significant influence on the effective functioning of the economy. A decrease in costs of exchange speeds up economic growth and an increase in costs slows down growth. This kind of approach enables us to explain the economic successes of democracies, the lagging behind of many countries in Asia and Africa, the historical reasons for the beginning of the industrial revolution in Europe, the speeding up of economic growth in the 18 th -19 th centuries, the rapid development of production in China and many other occurrences.
Highlights
The work of Lipset (1959) sparked an entire wave of studies into the link between the level of development of democratic institutes and economic growth
In this paper the author attempts to theoretically justify and empirically confirm the link between the democratic changes in countries and their economic growth. This link becomes apparent if we assume that the amount of transaction costs of exchange depends on the level of political and economic freedom
A decrease in costs of exchange speeds up economic growth and an increase in costs slows down growth
Summary
The work of Lipset (1959) sparked an entire wave of studies into the link between the level of development of democratic institutes and economic growth. One cannot help but agree with North’s (2005) view that dictators can create efficient institutes that promote the growth of welfare These words turn economics into a dismal science and there is nothing left for optimists to do. If democratic rights become weaker and the changes are negative, there will be a significant reduction in economic growth In this case negative growth may even be observed, i.e. a decrease in the production of goods and services. Established democracies have average growth rates because it is not at all easy to improve democratic institutes that are sufficiently developed. Why is growth dependent upon these changes? We will answer this question later, but we need to discuss the work of economists that appeared after the famous Lipset article
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
