Dr. László Láng on economic development and political democracy: do they go hand-in-hand?

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It is common knowledge that economic development and political / institutional democracy as achieved levels are related: the more democratic a country, the more developed it is likely to be and vice versa. But does it follow from this, asks Dr. László Láng in his recent article published in Kritika, that higher (relative) growth in a country leads to more democracy, and the other way round,  democratic setbacks will necessarily retard economic growth? 

The answer matters: if higher (relative) growth does not lead to more democracy even in the long run, then democracy is but the luxury of the rich, and conversely, if more democracy does not result in higher (relative) growth, then less developed countries cannot afford it. If this were the case, authoritarian leaders would find it as easy to argue against more democracy for their people (as they indeed do).

Academic literature shows that economic growth and democracy feed upon one another – in principle. On the one hand, sustained economic growth is supposed to impact positively upon the development of physical, human and social capital assets which result in the strengthening of the middle class and the progressive articulation and institutionalization of political and individual liberties. On the other hand, more democracy is thought to support and enhance economic growth through, among others, more accessible education and better healthcare, less income inequality, more competition, increased social transparency and the resulting safety of property rights.

Despite the logical and in fact, historical relatedness between economic growth and liberal democracy, mushrooming statistical analyses have failed to evidence this relatedness, finds Láng, suggesting that this might be a good news for political leaders with dictatorial temptations. In his highly critical review of the respective literature and in his subsequent statistical investigations (he calls them “wildcat drillings”) he focuses particularly on the effect of changes in the level of democratization (which he measures by EDI, effective democracy index) on relative growth performance and vice versa in the range of countries which are not perverted institutionally as well as economically by excessive rentier revenues (oil and gas and precious metal exporters mainly).  He finds no such relationship, either way round in the period between 1996 and 2013 leading to the conclusion that institutional democracy exists but above a certain level of economic development, and it is from an even higher level of development that it starts interacting with growth performance.

He makes then another round of “wildcatting” by excluding from his regression analyses all countries under a per capita GDP of USD 1,300 and 40% EDI in 1996 and including as another independent variable their starting development level. Thus he arrives at a sample of 42, largely high-income countries with an average EDI of 75-80%, and only in this sample he succeeds to demonstrate a statistically strong and significant relatedness between changing democracy levels and growth. It is particularly interesting that the effect of democratization (or the opposite, the dismantling of democracy) on relative growth appears to be much stronger than it is the other way round. This points to a take-off effect when a country must reach and sustain a relatively high level / quality of institutional democracy before it can experience the growth stimulating effects of more democracy and the negative growth returns of less democracy.

In conclusion, Dr Láng also explores several promising directions in which this research should be extended so that its findings be even more relevant for the real world of polity and its institutions. If interested, read the full article: Gazdasági növekedés és demokrácia: párosan szép?  Kritika, XLVI, no.1-2. (January-February, 2016), pp. 8-15. In Hungarian.