The Connection between Democratic Freedoms and Growth in Transition Economies

Abstract

The Freedom House democracy index is often used in regression analysis to estimate the relationship between democratic freedoms and growth. The index is comprised of two broad categories for political rights and civil liberties. However, the relationship between the underlying types of rights and liberties to growth remains unknown. A newer alternative democracy index developed by Freedom House specifically for the transition nations is compared to the original democracy index. The two are highly correlated but the latter entails a greater breakdown across six democracy areas including civil society, judicial framework, media independence, corruption, electoral process, and governance. Except for corruption, each is found to be individually significant in separate growth regressions, but when all are included simultaneously, only greater freedoms in civil society and electoral process are significantly correlated with higher growth, while greater freedom in judicial framework is significantly correlated with lower growth. The remaining areas are not statistically significant. JEL Classification: O1, P3, D7