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Corresponding Author:
Prathibha Joshi, Gordon State College, USA

Coauthors:
Kris Beck, Gordon State College, Barnesville, Georgia, USA

Economic Growth and the Rise of Democracy: A Granger Causality Analysis

Volume 74 - Issue 4, November 2021
(pp. 389-414)
JEL classification: H11, O10
Keywords: Economic Growth, Political Freedom, Granger Causality, OECD, Non-OECD

Abstract

Political freedom and economic growth have a complicated relationship, with a wide variety of studies finding different and sometimes contradictory results as to whether increased political freedom leads to more economic growth or rising economic growth creates opportunities for more democratic practices. To further cloud the picture, some authoritarian countries, like China and Vietnam, have experienced substantial economic development but have not embraced more political freedom as they have grown. Hence the interaction between economic growth and political freedom remains unclear. We therefore investigate the correlations between economic growth and political freedom in three categories, an updated Global, OECD, and non-OECD dataset; we use a vector autoregression (VAR) model through Generalized Method of Moments (GMM) estimation along with Granger causality analysis to determine how each variable impacts the other or if they indeed do so at all. We find that there is no Granger-causal link between economic growth and political freedom in either direction, with the exception of OECD countries where growth does Granger-cause political freedom.

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Economic Growth and the Rise of Democracy: A Granger Causality Analysis

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