8. Statistics show that dictatorships have had slightly higher rate of economic growth. Why?
Answers
Answer:
A democratic society is often regarded as a prerequisite for economic growth and development. Yet, most empirical studies are not capable of identifying a positive link between GDP growth and democracy indexes. In addition, it is a stylized empirical fact that: (i) most developing countries are dictatorships; and (ii) many poor dictatorships have experienced high growth performances and emerged from poverty such as South Korea, China and Egypt. Against this background, it is of interest to analyse in which ways the growth performance between autocratic and democratic economies may differ, in particular among low‐income countries. To answer this question, we compare the endogenous growth paths of two economies that differ only in their political regimes in the context of an overlapping generations model. The key features of the model are: (i) a positive bequest motive in the form of investments in education or productive public capital (infrastructure); (ii) a higher marginal (inter‐temporal) utility of consumption today versus consumption tomorrow in low‐income countries (for example, subsistence level of consumption); and (iii) a dictator that cares about her income or the income of her dynasty tomorrow. In this framework, we demonstrate that poor but large and stable dictatorships exhibit a higher equilibrium growth rate than comparable (equally poor) democracies. Moreover, there exists a particular threshold value in income such that the growth‐reducing impact of dictatorial consumption (corruption) outweighs the higher (initial) public investments. Above this, the growth rate under democracy dominates the one in dictatorship.
Explanation:
Democracy is then a kind of luxury good only developed countries can afford. In the case of poor or medium-developed countries democracy does not facilitate the increase of welfare because in democratic systems it is difficult to maintain discipline and social order and voters call for redistributive policies to achieve a higher current consumption share (Schiffbauer and Shen 2010). Collier (2009) came to the conclusion that in low-income countries democracy contributed to an increase in tension and the number of acts of violence. ...