Individual rights as a factor of economic convergence

Abstract

This paper attempts to contribute to the understanding of how democracy and individual rights associated with it affect economic development. The market process approach to innovation (and entrepreneurship) is combined with the stationary bandit approach to property rights to derive a proposition concerning how the lack of exogenous constraints on the government can retard innovation. According to this, a credible commitment to secure property rights through respecting individual or human rights becomes an important factor for the process of catching up for those countries that are relatively close to the most developed ones in terms of technology and thus income. The proposition is tested on cross-country panel data using a measure of civil rights as a proxy for the commitment to secure individual rights. This argument provides one possible explanation for the fact that there is a strong correlation between democracy and income while the correlation between democracy and growth is weak.