Democracy, Regime Stability and Economic Growth: A Cross Country Dynamic Panel Data Analysis.

Abstract

This study assesses the impact of democracy on the economic growth in a dynamic panel data of 132 countries from 1970 to 2010 using fixed effects (FEM) and simultaneous equation model (2SLS); controlling for the unobserved individual heterogeneity and simultaneity bias. Further, the impact of democracy on economic growth is reassessed by augmenting the models with Regime Stability. The results obtained indicate that democracy has a positive impact on the economic growth when the Regime Stability is controlled for. The incorporation of the reverse causality and individual heterogeneity further increases the democracy coefficient. On the other hand, economic growth has been found as insignificant determinant of the democracy.

Keywords – Democracy, Regime stability, Economic growth, Panel data analysis.