Democracy and Economic Development

Chapter7DemocracyandEconomicDevelopment7.1IntroductionWhileChap.6focusesonthefactorsaffectingdemocracyinChina,thischapteristoexaminetheimpactofdemocracyoneconomicdevelopment.Toachievethisobjective,theauthorwillreviewtheexistingliteratureontherelationshipbetweendemocracyandeconomicdevelopment.Ifthereissuchadirectlinkagebetweendemocracyandeconomicdevelopment,whataretheimplicationsforChina?Ifdemocracyhasnodirectimpactoneconomicdevelopment,itisnecessarytoinquireintotheindirectimpactsofdemocracyoneconomicdevelopment.ThechapterthenraisesthequestionofwhethertheseindirectpositiveeffectscanberealizedundertheexistingpoliticalandeconomicsysteminChina.Ifchangesarerequired,whatarethenecessarychanges?Forthispurpose,Sect.7.2ofthischapterwillanalyzetheexistingliteratureontherelationshipbetweendemocracyandeconomicdevelopment.Section7.3willexaminetheindirecteffectsofdemocracyoneconomicdevelopment.Section7.4willdiscusstheissueonhowChinaistoutilizetheindirectpositivebenefitsofthemechanismsfoundinothermatureddemocraticcountries.7.2TheRelationshipBetweenDemocracyandEconomicDevelopmentTheliteraturewithrespecttotheimpactofdemocracyoneconomicdevelopmentcanbedividedintothreecategories.Thefirstcategoryrevealsthatdemocracyhasanegativeimpactoneconomicdevelopment.Forinstance,Helliwell(1994)hasexaminedtherelationshipbetweeneconomicdevelopmentanddemocracy.Regardingtheeffectofdemocracyoneconomicdevelopment,hisregressionstudy(Helliwell1994:240)showsthatdemocracyhasanegativeeffectongrowth“althoughtheeffectisnotstatisticallysignificantattheusuallevels.”Helliwell’sG.Yu,TheRolesofLawandPoliticsinChina’sDevelopment,DOI10.1007/978-981-287-002-5__7,©SpringerScienceCBusinessMediaSingapore20141451467DemocracyandEconomicDevelopmentempiricalstudyislargelyconsistentwithanearlyreviewof13studiesconductedbySirowyandInkeles(1990).TheresultofthereviewofSirowyandInkeles(1990)showsthatdemocracyhasunqualifiednegativeeffectsinthreestudies,negativeeffectsinsomecircumstancesinfourstudies,andnoeffectsintheremainingsixstudies.Thesecondcategorysuggeststhatdemocracyhasnodirectimpactoneconomicdevelopment.Forinstance,PrzeworskiandLimongi(1993:60)examined18studiesthatgenerated21findings.Theseauthorsreviewedargumentsofwhetherauthoritar-ianregimesordemocraticregimesaremorerelevanttoeconomicgrowth.NeitherthetheoreticalanalysesnorthestatisticalassessmentsconductedbyPrzeworskiandLimongi(1993:51–60,60–64)haveenabledthemtodrawclearconclusionsonwhetherdemocraticregimesorauthoritarianregimesfosterorhindereconomicgrowth.AllPrzeworskiandLimongi(1993:51,65)couldsuggestisthatregimesdonotcapturetherelevantdifferenceseventhoughpoliticsmatter.Similarly,Leblang(1996)hasexaminedtherelationshipbetweenpropertyrights,democracy,andeconomicdevelopment.Hisregressionanalyseshavetestedcross-nationalpaneldatafrom1960to1990withintheendogenousgrowthmodel.Oncetheeconomicfactorsarecontrolled,“thedegreetowhichapolityisdemocraticdoesnothaveastatisticallysignificanteffectonanation’sgrowthrate”(Leblang1996:17).Inotherwords,regimetypedoesnotexplaincross-nationalvariationsingrowthrates(Leblang1996:18).Usingaregressionmodel,BurkhartandLewis-Beck(1994)haveanalyzedasampleof131nationsfrom1972to1989,alsototesttherelationshipbetweendemocracyandeconomicdevelopment.Whiletheirmajorfocuswasonthedebatewhethereconomicdevelopmentcausesdemocracy,theirtestresultalsosupportedtheconclusionthat“democracydoesnotcauseeconomicdevelopment’(BurkhartandLewis-Beck1994:907).BurkhartandLewis-Beck(1994:907),however,didclarifythatdemocracydoesnoharmtoeconomicdevelopment.Usingadifferentapproach,DoucouliagosandUluba¸so˘glu(2008)haveemployedameta-analysiswhichincluded84studiesontherelationshipbetweendemocracyandeconomicgrowthtoexaminetheeffectsofdemocracyoneconomicgrowth.Theresultoftheirregression(2008:68)analysisisthatthedirectdemocracy-growtheffectiszero.Thethirdcategorytendstofocusontheindirecteffectofdemocracyoneconomicdevelopment.Scholarswhofocusontheindirecteffectofdemocracyoneconomicdevelopmenttendtobepositivealthoughmanyofthemhaveconcludedthatdemocracyhasnodirecteffectorevennegativeeffectoneconomicdevelopment.Forinstance,Leblang(1996:17)revealedthatdemocraciesofferbetterprotectionofpropertyrights.Helliwell(1994:246)alsosuggestedthatthedirectnegativeeffectofdemocracyoneconomicdevelopmentisoffsettosomeextentbytheindirecteffectsofdemocracyontheeconomythroughinvestmentandeducation.BaumandLake(2003)usedadatasetconsistingofa30-yearpanelof128countriesfrom1967to1997intheirregressionanalysis.Theyanalyzedboththedirecteffectandtheindirecteffectofdemocracyoneconomicgrowth.Theresultoftheirtestdidnotsupportanydirectpositiveeffectofdemocracyoneconomicgrowth(BaumandLake2003:343).BaumandLake(2003:344–345),nevertheless,concludedthat7.2TheRelationshipBetweenDemocracyandEconomicDevelopment147democracyhasindirectpositiveeffectsoneconomicgrowththroughimprovementoflifeexpectancyinpoorcountriesandsecondaryeducationinnon-poorcountries.Similarly,DoucouliagosandUluba¸so˘glu(2008:75–76)concludedthatdemocracyhaspositiveeffectsoneconomicgrowththroughindirecteffects