Political Regimes, Economic Freedom, Institutions and Growth

Abstract

The impact of political systems on economic growth cannot be understood solely in terms of a simple distinction between democratic and non-democratic regimes. The democratic character of the political regime may be irrelevant when economic freedom is assessed independently from political freedom and civil liberty. This paper uses newly constructed measures of economic freedom by Gwartney-Lawson-Block [1996]. The empirical results of this paper show that economic freedom contributes to economic growth irrespective of the nature of the political regime. The empirical results also indicate that the effect of democracy on economic growth is ambiguous at best. Nonetheless, democracy may have some effect on economic growth, operating indirectly through the investment channel.