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Does democracy dampen the effect of finance on economic growth?

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  • Kevin Williams

    (The University of the West Indies)

Abstract

Although a large empirical literature seeks to explain the effect of financial development in promoting economic growth, there is surprisingly little evidence for the impact of political institutions on the growth–finance relationship. This paper finds that political institutions condition the effect of financial development on economic growth. Using a dynamic panel estimator and a sample of 78 developing and emerging economies for the years 1982–2011, the paper investigates the impact of democracy on the relationship between financial development and economic growth. The paper finds that democracy does not enhance the effect of financial development on economic growth. This finding is consistent with a view that democracy can be captured by political elites or other special interests in developing and emerging economies, where institutions are relatively weak.

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  • Kevin Williams, 2017. "Does democracy dampen the effect of finance on economic growth?," Empirical Economics, Springer, vol. 52(2), pages 635-658, March.
    • Handle: RePEc:spr:empeco:v:52:y:2017:i:2:d:10.1007_s00181-016-1089-1
    DOI: 10.1007/s00181-016-1089-1
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    2. Slesman, Ly & Baharumshah, Ahmad Zubaidi & Azman-Saini, W.N.W., 2019. "Political institutions and finance-growth nexus in emerging markets and developing countries: A tale of one threshold," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 80-100.
    3. Clement Olalekan Olaniyi, 2022. "On the transmission mechanisms in the finance–growth nexus in Southern African countries: Does institution matter?," Economic Change and Restructuring, Springer, vol. 55(1), pages 153-191, February.
    4. Kevin Williams, 2021. "Does national income mediate the relationship between trade and government size?," Empirical Economics, Springer, vol. 61(6), pages 3029-3057, December.
    5. Olayinka Oyekola & Sofia Johan & Rilwan Sakariyahu & Oluwatoyin Esther Dosumu & Shima Amini, 2023. "Political institutions, financial liberalisation, and access to finance: firm-level empirical evidence," Discussion Papers 2307, University of Exeter, Department of Economics.
    6. Ibrahim D. Raheem & Kazeem B. Ajide & Xuan V. Vo, 2021. "The hype of social capital in the finance‐growth nexus," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 50(3), November.
    7. Zeineb Gouasmi & Houda Haffoudhi, 2020. "Analysis of Sustainability of Fiscal Policy and Democratic Transition: Case of Tunisia," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 11(2), pages 512-529, June.
    8. Anwar, Amar & Iwasaki, Ichiro, 2022. "The Finance–Growth Nexus inAsia : A Meta-Analytic Approach," CEI Working Paper Series 2022-03, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    9. Adewale Samuel Hassan & Daniel Francois Meyer, 2022. "Interplay between Finance and Institutions in the Development Process of the Industrial Sector: Evidence from South Africa," JRFM, MDPI, vol. 15(10), pages 1-20, October.
    10. IWASAKI, Ichiro & ONO, Shigeki, 2023. "Economic Development and the Finance-Growth Nexus : A Meta-Analytic Approach," CEI Working Paper Series 2023-06, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.

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    More about this item

    Keywords

    Financial development; Economic growth; Democracy; Panel data;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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