The Connection Between Economic Growth And Political Democratization

Can A Push Toward Democracy Spur Economic Growth?
Last year witnessed several nations launch transitions toward democracy, including in Egypt and Libya. A recent paper suggests that even the attempt to reform can have economic benefits.

Economists Caroine Freund and Melise Jaud conducted an examination of as many as 90 political transitions over the last century in search of an answer. Writing on the website Vox, the duo found that regardless of whether the transitions were eventually successes or failures, “most transitions are successful politically and/or economically.”

They found that about 45% succeeded, 40% failed, and 15% achieved democracy gradually with success being defined as “achieving a high level of democracy within three years and maintaining it.”

“Importantly, we find that the majority of countries that underwent a transition experienced long-run gains in income growth following short-run declines,” they concluded.

Faster Transitions Produce Greater Growth
They did find that the pace of transition does have an impact with faster being better in the long-term. The economists attribute this to the fact that “most gradual transitions are gradual by default not by design, with political transition happening in fits and starts, resulting in elevated political and policy uncertainty for many years.  This gives investors, employers, and consumers the incentive to wait and see what will happen before risking capital.”

When Research Meets Reality – Egypt
One year after it began transitioning, Egypt faces enormous challenges – both economic and political. Samir Radwan, a former Egyptian finance minister, says his nation “cannot afford to delay an economic recovery any longer. The economic and social costs would be immeasurable.”

He believes the government should first address short-term solutions which focus on its current financing gap, caused by budget and balance-of-payment deficits, of about $14.5 billion. But, he adds, the main obstacle to achieving growth remains a political one.

“The way out of this impasse is to seek a genuinely inclusive, rather than divisive, political system, in which consensus can be reached on the major changes to policy that Egypt so badly needs. In other words, the solution to Egypt’s economic problems is mainly political,” he concludes.

 

 

 

 

 

Caroline Freund, Mélise Jaud,

 

 

 

 

 

 

 

 

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