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Democracy, Economic Freedoms and Economic Growth: An Investigation on the Role of Institutions

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  • Emrah KOÇAK
  • Nısfet UZAY

Abstract

The main purpose of this paper is to investigate the impact of the institutional quality on economic growth in high, medium and low-income countries in the period of 1995-2013. In this study, institutional quality is represented as a component of democracy and economic freedoms. The institutional quality index for each country is calculated by the principal component analysis (PCA) method using democracy and economic freedoms indicators. Then, the relationship between the institutional quality index and economic growth is estimated by panel data analysis method (panel unit root, panel cointegration, panel causality analysis). The estimation results for all groups of countries are as follows: (i) the panel cointegration test confirms a long-run equilibrium relationship between institution quality and economic growth. (ii) According to this relationship, institutional quality has a positive effect on economic growth. (iii) The panel causality tests support a bidirectional causality between institution quality and economic growth. The results of the analysis indicate that institutions are a significant influence on economic growth.Classification-JEL:E02, O43, C01. Keywords:Democracy, Economic Freedoms, Institutions, Economic Growth, Panel Data, Principal Component Analysis

Suggested Citation

  • Emrah KOÇAK & Nısfet UZAY, 2018. "Democracy, Economic Freedoms and Economic Growth: An Investigation on the Role of Institutions," Sosyoekonomi Journal, Sosyoekonomi Society, issue 26(36).
    • Handle: RePEc:sos:sosjrn:180205
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    More about this item

    Keywords

    democracy; economic freedoms; institutions; economic growth; panel data; principal component analysis;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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