Page 420 - Volume 2_CHANGES_merged_with links

Development Aid

“Izandla ziyagezana” - “Hands Wash Each Other”

In a multivariate growth regression analysis where both quality of governance and
democracy indexes are introduced, the democracy variable loses its statistical

significance. The quality of governance variable, on the other hand, is statistically
significant and a strong determinant of growth. In fact, an increase in the governance
index of one standard deviation increases the growth rate of GDP per capita by 1.2

percentage points per year.
Our results thus suggest that democracy is a key determinant of growth but only insofar

as it is associated with improved governance. In cases where democracy is not
associated with improved governance, it will have very little impact on growth.
And in authoritarian countries where the quality of governance is high, growth is likely to

also be at high levels “
DEMOCRACY, GOVERNANCE AND ECONOMIC GROWTH: THEORY AND EVIDENCE* n.d., 44. 471
Francisco L. Rivera-Batiz
Department of Economics, Columbia University

***** ***** *****
“This paper extends these past studies by focusing on the effects of democracy and
political stability in developing countries. It also attempts to differentiate the effects of

political stability and democracy on economic growth. The results suggest that
democracy has a negative effect on economic growth. However the results also suggest

that political stability regardless of the level of democracy has the greatest effect on a
country’s economic growth.

*****
In order to substantiate the hypothesis that democracy has a negative effect on

economic growth in developing countries, this study explored the effects of four kinds of
political indicators and their impact on economic growth. The political dimension that this

paper addressed was then subsequently added to the neoclassical growth model using
the following variables: level of democracy, level of political stability, level of government
effectiveness and level of economic freedom.

Using a sample consisting of data from a number of developing countries from the years
1998 and 2002, this paper found that all the political indicators did in fact affect the

economic growth through a set of direct and indirect effects. These findings give a new
perspective to existing literature, as this paper regards democracy and political stability

as independent variables. The results have revealed a number of mechanisms that give
an advantage to countries that enjoy greater political stability.