The Relationship Between Democracy and Economic Development

Some people and studies have indicated that democracies play a significant role in increasing the likelihood to achieve sustainable economic growth. However, there are some others that see democracy as a barrier to economic growth. There exists a strong relationship between the different forms of governance and economic growth. The countries that have mature democracies are at an advantage in terms of economic growth as compared to the others that are lagging behind. The link between democracy and economic development started in Europe in the period of industrial revolution. Most of the countries that experienced the revolution were preceded with the maturity of democracy (Bal Gündüz, 2016, p. 31). The mixed systems and the monarchies became the choices and preferences for some rulers as economies witnessed unprecedented growth in welfare and personal wealth. However, different forms of democracy have varying impacts on the countries’ economic growth. Literature has been growing within the last decades on the effects of democracy on economic growth in low-income countries. The paper explores the arguments supporting liberal democracy for economic growth in the low-income countries. The ’50-year-old myth’ justifies liberal democracy to promote more economic growth than the authoritarian rule (Vachudova, 2005, p. 25). The autocratic regimes do not provide favourable environments for the economies to thrive.

Why Liberal democracy for economic growth?

Liberal democracy is based on the mandate of the people and the balance that is stroke by the government for the honouring the principle of limited control of the popular consent. The external and internal checks of the government are only meant to guarantee protection and liberty of the citizens of the state (Aisen, " Veiga, 2013, p. 151). The features of such a system include regular competitive elections that are free and fair, and based on political equality and universal suffrage, existence of a constitutional government founded by the rule of law, guarantee of individual rights and civil liberties by the constitution, systems of checks and balances, fragmentation of the institutions (Przeworski, Adam, José Cheibub, " Fernando Limongi. 2000, p. 25). Besides, the features of a liberal democratic regime play a critical role in terms of limiting the powers of the state and executive that can sometimes affect the economy negatively.  The activities of the executives are held in checks and balances by other institutions thus the chances of focusing on a development perspective are higher than the authoritarian regimes that put their personal agendas first (Vachudova, 2005, p. 26).

            Liberal democracies produce more development-based benefits than the authoritarian rule (Vachudova, 2005, p. 25). These include improving the levels of life expectancy rates for the citizens that are higher than autocracies providing them with opportunities to do business, work and amasses wealth. There is better growth in the consistent liberal democracies thus delivery of high income per capita, capitalist economy, and the existence of healthy civil society groups (Aisen, " Veiga, 2013, p. 159). Better education is also achieved and people yield more agricultural products to supporting economic growth. The United Nations Human Development Index puts liberal democracies above the authoritarian rule. The former scores 10-20% more than the latter Aisen, " Veiga, 2013, p. 160).

            The economic freedoms that are offered in the liberal democracies provide a conducive environment for economic growth. The liberal democracy is shaped by the features of equality, freedom, modernity, and progress. Its focus is maximizing the well-being of the people (Przeworski, Adam, José Cheibub, " Fernando Limongi. 2000, p. 39). The constitutional processes and the checks and balances offered by the government are meant to strengthen the systems and protect its people. The acts of liberal democracy such as lowering the income inequality and fostering an environment that improves human capital accumulation re meant for sustainable growth (Knutsen, 2011, p. 84). Higher growth rates of per capita income have been experienced in low-income countries that have adopted liberal democracy as their system of government. (Knutsen, 2013). These include most of the African countries.

Uncertain political and economic environments reduce the investment, availability of donors and raise the risks in the market that are enhanced by instability. The issue is common in the authoritarian rule because of lack of fairgrounds and competition creating instability and turmoil. Aisen and Veiga (2013) found that political instability is directly proportional to low economic growth rates as well as human capital accumulation. On the other hand, ethnic homogeneity and economic freedom foster positive growth of the economies in the low and middle-income countries (Profeta, Puglisi, " Scabrosetti, 2013, p. 684). They provide a decisive effect on human capital and investment as well as industrial production and technological advancements. Besides, they shape the distribution of resources to eliminate inequality that is a hindrance to economic growth. These institutions include the ones responsible for macroeconomic stabilization, social insurance, regulatory, property rights and conflict management (Aisen, " Veiga, 2013, p. 157)

Economic institutions that are shaped by liberal democracies

            It is only in the countries that have constitutional and legitimate government that have the capacity to implement policies that can foster economic growth and sustain it (Carrère, De Melo, " Wilson, 2012, p. 718). Besides, successful liberalization can only be achieved by inclusive governments with effective conflict management institutions. However, proponents of authoritarian rule indicate that liberal democracies are sometimes the hindrances to countries achieving economic growth to a full potential. They argue that authoritarian regimes are in a better position to introduce liberalization measures in the market other than democratic ones (Vachudova, 2005, p. 47). These measures may include layoffs and massive reductions in entitlements that cannot prevail in the liberal democracies. At the beginning of every liberal democracy, it is paramount to introduce authoritarianism to shape economic reforms that can be turned down by the voters. Popular policies that promote economic progress are turned against by the voters and are often not implemented in democratic regimes (Bal Gündüz, 2016, p. 30). Halting of these economic policies can only be avoided by eliminating political backlash promoted by liberal democracy.  Both the internal and external threats posed by the authoritarian rule give an opportunity for stimulation of the political will that fosters economic growth. Long-term planning is possible and different adaptive and experimental ways for solving problems that arise.

Why illiberal democracy is not suitable for economic growth in the low-income countries

In most illiberal and authoritarian states, the governments experience both internal and external threats to the extent that they cannot be assuaged by resources and aids. These regimes lack a development policy that is credible as the leadership is embedded in bureaucracy (Vachudova, 2005, p. 48). Besides, they lack strategies for effective implementation of policies and the enforcement capacity. There are several recent studies that have shown liberal democracy to have positive effects on the protection of human rights and enhancement of human capital, unlike the authoritarian rule.

A perfect case study for the dismal performance of economic growth under authoritarian rule is Zaire (Democratic Republic of Congo). After decolonization, the economic performance of the country was on the decline even before the civil wars stroke the country. There was a decline in the production as well as production mainly because the private sector had changed from formal to the informal economy. The country had already experienced economic downfall as a Belgian colony but the situation became worse when power was given to Mobutu as the prime minister. The country had ineffectively functioning institutions and the raw materials and labour had already been extracted by the colonizers (Narayan, Narayan " Smyth, 2011, p. 908).

When the army chief of Staff, Mobutu was forced to power, the country became even poorer than it was before because of the disastrous economic performance. The infrastructure degraded and there was a witness of decomposing factories. The rulers failed to develop the country because of their self-interests and reasons of political survival. They neglected expenses on the public goods such as education and Health. Corruption rose as the leaders pocketed public revenue (Przeworski, Adam, "Fernando Limongi., 1997, p. 157). The regime’s expropriation made the investment climate uncertain for both the foreigners and the citizen further pushing the economy to a state of degradation. Lack of strong institutions and the rule of law made looting a normal business by the leaders and other actors. The country was hindered from achieving its optimal economic potential from the rich minerals and weakened the human capital base.

The increase in uncertainties in the authoritarian rules distort taxes and the incentives for the investment. Those who back the regime have an entitlement to property above the others without the achievement of progressive redistribution (Bal Gündüz, 2016, p. 39). There is low or no political accountability in dictatorial rules because of lack of free and fair elections thus reducing the pressure on leaders distribute resources effectively and efficiently for public consumption (Marshall, Gurr, " Jaggers, 2013, p. 42). Self-interested rulers in the authoritarian rule do not take into consideration the preferences of the citizens as they use the powers that they have to enrich them (Benhabib, Corvalan, " Spiegel, 2013, p. 489). The general population tends to suffer economically because of the promotion of policies only beneficial to the rulers. Some rulers even confiscate socially productive resources reducing economic growth. Besides, the restriction of civil liberties under authoritarian rule with an aim of reducing threats to the dictator’s political survival halts technological changes as product information is curtailed (Przeworski, Adam, "Fernando Limongi. (1997, p. 151).

Several African countries have experienced significant economic growth from the periods of democratization in the 1990s (Hillman, 2013, p. 59). These include Ghana, Kenya, Malawi, and Mozambique. Besides, democratization in the Philippines after the demise of Marcos posted a high economic growth rate (You, 2011, p. 15).  Liberal democracies support economic growth mainly because of the regime’s protection of property rights, the checks, and balances on predatory rulers, state’s autonomy, and investment. The tool to achieve this is the implementation the constitution, policies and the regulatory frameworks as well as effective institutions (Doucouliagos " Ulubasoglu, 2008, p. 61).

There is a dispersion of power in the democracies among different institutions thus preventing against single actors endorsing policies that favour them at their cost.  The free media, elections and the and independent courts that only exist in liberal democracies (Benhabib, Corvalan, " Spiegel, 2013, p. 490). The civil societies keep the government on a check through oversight thus preventing vices such as corruption and looting of public resources that halt the economic progress of the country.

            The horizontal distribution of power means that individuals can adjust their positions and gather new information that is part of technological advancements (Hodgson, 2017, p. 52). Free and open debates give the opportunity to eliminate unfounded knowledge and gain a new idea as well as effective solutions to problems facing the different sectors of the economy.  One of the most political transformations experienced in liberal democracies is engendering of equality (Aisen, " Veiga, 2013, p. 152). Political competition and classical liberal ideas affect the policy-making of the state. The redistributive tendencies that are experienced in liberal democracies promote economic expansion. It is only the condition of pluralism that competitive and innovative technologies that promote macroeconomic performance (Hellmanzik, (2013, p. 60). Citizens, as well as the foreigners, are motivated to invest and work in the countries that promote basic freedoms and civil rights as they give them the security of expectations. It is through creation of a certain politico-economic environment with credible policies that can guarantee improved growth rate by technological advances, innovation and promotion of foreign direct investments in these low-income countries (Bjørnskov, C., (2010, p. 116). There is an idea that illiberal democracies give the rulers the power to prey on the society.


There has been considerable economic, social and technological progress across the world in the last decade. Most low-income countries have witnessed growth in their daily turnovers, foreign direct investments, and global exports. Liberal democracy in these countries has been the avenues for the global economic increase as it opens up the prospects for development. Liberal democracy ensures that the rulers and the people rule of law and the decentralization of power and resources that are essential for growth. Transparency, oversight, and accountability are at their best thus vices such as corruption and looting of public coffers that are common in authoritarian regimes are minimal or non-existent. The civil societies become some of the actors to foster development by setting priorities for the vulnerable. Economic growth, especially in the developing countries, can only be sustained by the long-term protection of political freedoms and civil liberties. There is robust evidence to support liberal democracy such as the case of most African and Latin countries which have been experiencing phenomenal economic growth in the past two decades. Therefore, the emergence of democracy has been described as the endogenous to the process of social and economic development and modernization. The role of democracy in economic growth of low and middle-income countries has been a hotly contested issue with the proponents of liberal democracy and those of the authoritarian rule having strong points to prove their case. However, the analysis of robust evidence indicates that liberal democracy puts these countries at the forefront in achieving economic development and sustainable growth.


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