Democracy and economic growth

Abstract

Many nations consider democracy to be an important social value. Nevertheless, does it mean that countries with more democracy are often wealthier? What are the relationships between economic growth and democracy? This research includes 167 countries to study the issue. We employ the data of the democracy index, corruption perception index, inflation, population, number of internet users, balance of trade, foreign direct investment, etc. We have also included sub-indices such as the electoral process and pluralism, functioning of government, political participation, culture, and civil liberties. An innovative part of the paper is how the corruption perception index has been included in our analysis. Besides, principal component analysis is applied to study the relationship between democracy and economic growth. We conclude that it takes democracy a very long time to affect the macro-economy. The fast pace of change in democracy even harms the macro-economy. If the economy reaches a well-developed stage, the economy will gradually transform into a democratic city automatically in the absence of any external pressure.