Does democracy dampen the effect of finance on economic growth?

Kevin Williams ()
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Kevin Williams: The University of the West Indies

Empirical Economics, 2017, vol. 52, issue 2, No 8, 635-658

Abstract: 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.

Keywords: Financial development; Economic growth; Democracy; Panel data (search for similar items in EconPapers)
JEL-codes: G20 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (13)

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DOI: 10.1007/s00181-016-1089-1

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