The Relationship between Democracy and Economic Growth in the Path of Sustainable Development

Abstract

Democracy has both a direct and an indirect relationship with sustainable development. Democracy is related to the movement toward long-term economic development directly, and indirectly, democracy can provide the means to create the institutional structures needed to create links between the political systems, the culture of participation, and the social values of a society. Since economic development is a multidimensional concept and one of its primary requirements is to achieve a high level of income and appropriate economic growth, knowing the relationship between democracy and economic growth is especially important for policymakers. Many important questions are raised about the relationship between democracy and economic performance. What is the relationship between democracy and economic growth? Is this relationship different in developed countries and developing countries? Considering the effects of democracy and economic growth on the welfare of communities, the main purpose of this study was to investigate the causal relationship between democracy and economic growth from 1990–2020 for the OECD and selected developing countries. The results showed that the conflict and skeptical hypotheses had been established in OECD and developing countries, respectively. It was concluded that the pattern of economic growth and development in OECD countries differed from that in developing countries. For OECD countries, real per capita GDP growth was mainly affected by previous per capita GDP growth, and the effect of democracy on per capita economic growth was negative. Moreover, the results indicated that in developing countries, democracy alone had not triggered economic growth and that real per capita GDP growth depended on other important structural variables such as social and physical infrastructure.