Project description: “Democracy and economic growth”
1.
Main research question and topic:
How does political regime type affect economic growth? This is the main question to which my
proposed PhD-project will respond. Political regime types have at least since Plato and Aristotle been
classified in several ways. I will however focus on one underlying dimension, which is probably the
most commonly used in regime classification today namely degree of democracy. More precisely,
and following David Beetham’s (1999:90) definition of democracy, how does the degree of popular
participation in collective decision making, and further the particular institutions that underpin this
feature of politics as well as general political power dispersion affect economic performance, more
specifically growth in GDP per capita1? The research question is a causal one, and the research that
follows will seek to explore how democracy affects economic growth by: a) Elaborating theoretically
upon the possible mechanisms and channels through which popular participation in politics of
different forms can affect economic outcomes and performance in a country. b) Empirical
investigation performed on the basis of hypotheses derived from the theoretical considerations.
The research question as stated above is very general. I am acutely aware of the importance of
specification of the research question, and a division of it into different sub-questions. A list of more
specific or different, but closely related, research questions could be illuminating, when trying to
understand what I want to do in a PhD.-thesis.
Table 1: A list of relevant questions for the project
Specifications:
*How does political regime type affect economic growth “on average”? What are the central limitations to answering this
question? Is the “average” effect of an increase in degree of democracy on growth linear, and if not, is the relationship
inversely u-shaped as Barro (1991) found, or u-shaped as I have earlier suggested for the 1990’s and beyond (Knutsen,
2006a and b)?
*How does the political regime type affect variations in economic performance, both between countries with the same type
of regime, and within one country over time? What does actually concentration of political power in the hands of an elite
imply, and how do economic outcomes depend on the incentives (and also to some extent abilities) of these elites in
authoritarian systems? Do “checks and balances” in democracies by narrowing the political opportunity set also reduce the
range of possible economic outcomes?
*Do transitions to and from democracy affect growth, and does having a stable democracy imply higher or lower growth
than having an authoritarian regime?
Mechanisms and channels:
*What elements of a political regime are relevant for economic growth, and what are their anticipated effects? Which
institutions are most relevant for the economy, for example when comparing free elections and constitutionally guaranteed
freedom of speech?
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There is also a possibility that I will extend the project by looking at other economic outcomes than growth as dependent
variable, for example distributional outcomes, poverty and other broader concepts of development. The time dimension is
also important when addressing economic performance variables. How regime types affect “sustainable” growth over
longer time periods will be a very important specification of the research question.
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*What are the channels through which political regime influences economic growth, and how is the effect best described?
Should we anticipate effects from political regime type on labor force participation, physical investment, human capital
formation, technological change or structural changes in socio-economic organization? Is the channel one that
anticipatively can bring “sustainable growth”? How do these channels relate to each other, and how do causal feedback
mechanisms affect the relationship?
Contextualization:
*How does the temporal context (international political/economic climate) affect the relationship under study? Which
identified mechanisms dominate under specific conditions? How do politics at the international and national level interact
when shaping economic outcomes?
*How does the geographical context affect the relationship? More specifically, how does having a democracy affect
economic growth for Asian and African countries respectively? How do political and economic spill-over effects from
neighbours influence a potential relationship between regime type and growth?
*How do other variables like inequality or level of development affect the relationship?
*How does a further increase or decrease in popular participation in politics affect the economy in already relatively
democratic countries like the European and North American? What is the effect of referendums, increased technocracy
and other relevant variables?
In the extension of the main problem question:
*How does “personalization” of politics in certain type of authoritarian states affect the long term economic outcome? Is
there reason to expect economic collapse with the away fall of a leader or a clique in states where power is not to a large
degree “institutionalized”?
Generalizations of the research question, which I might want to explore at least to a certain extent:
*How does political regime type affect economic development?
*How is the (causal) relation between political regime type and economic growth structured?
If one wants to understand how the degree of democracy affects the economy, and the growth in GDP,
more specifically, one needs to understand both how political institutions and processes work, as well
as have a grip on economic mechanisms and relationships. My research question, can therefore
neither be conceived as a pure political science, nor a pure economics question. The interdisciplinary
dimension will be reflected for example in the use of theory, and not only contributions from different
parts of political science and economics, but also economic history, sociology and technology studies
will be drawn upon.
2.
Academic and real world relevance
The proposition that democracy hinders growth at least for poorer countries has been called the “Leethesis” after the Singaporean Prime Minister, Lee Kuan Yew, who eloquently formulated this claim
with his own Singapore being exhibit number one (Sen, 1999:15), but this claim is not accepted by
everyone. There has been an increasing focus on how democracy affects economic development, and
growth in particular, over the last decades. An early “meta-study” was provided by Przeworski and
Limongi in 1993, but the field of research has developed, culminating in the seminal study of
Przeworski et al (2000) and later important works like that of Tavares and Wacziarg (2002) and
Halperin et al. (2005). There is however still a large potential for developing new insights and results
in an area where the conclusions of different authors have been highly diverging. The actual political
relevance can be illustrated, as can the broadness of the project’s general thematic, by listing a couple
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of selected questions that interests more people than academics: Which country will excel the most
economically over the next decades, democratic India or authoritarian China, and will political
regime type be an explanatory factor? Has the authoritarian nature of many African regimes actually
affected their dismal development performance, and can “democratization” provide the key to
prosperity? Is removing monetary policy from the reach of governments and parliaments, and thereby
the influence of electorates, to independent central banks a decrease in degree of democracy, and does
this enhance long term economic performance?
3.
Structure of the project: theoretical analysis, empirical analysis and methodology
The PhD thesis will after a general introduction (A) provide a thorough discussion on what
democracy is, the different views and debates (B), as well as operationalization issues (C). It will then
be followed by a discussion of economic growth and development concepts (D), connected validity
problems (E) and data issues (F). As now mentioned the thesis will include a theoretical part
consisting of a presentation of several arguments (G), thereafter I will identify on which level of
analysis they work and further specify their interrelations (H), probably summarized in part by one or
more formal models (I). These will be followed by stringently derived hypotheses (J), ready for
empirical testing, in order to explicitly connect the theoretical and empirical parts. The thesis will
include a substantial section on the relevance, weaknesses and strengths of different methodologies
(K) when analyzing the relationship, closely coupled to the substantial nature of the thematic. The
empirical section will be the largest part of the thesis, and will consist of general statistical studies
using different methods (L), as well as selected case studies (M), set in system by the theoretical
concepts, and analyzed also in a comparative fashion (N). Finally there will be a conclusion (O) and
possibly (normative) policy advice (P).
Theoretically, I will aim at elaborating upon several of the arguments I have collected or produced by
combining insights from different “schools” and “disciplines” in the social sciences2, and especially
at clarifying their interrelations and the different arguments’ relevance in specific contexts. This field
of research has been largely empirical in nature, and there is room for theory construction. I will work
towards boiling down some of the insights to one or plausibly several alternative formal, coherent
models. One idea is to use of principal-agent and game theoretic models when modelling the
relationship between populace and political elites under different regimes and contexts. There will
also be a wider, thorough verbal discussion and analysis of these issues. I do not go very deep into
theory use and construction here, but I can exemplify some of my anticipated work by referring one
“channel” I treated in my master thesis in political science. The effect of democracy, especially of
2
See Knutsen (2006a:59-137) for the description of twenty analytically distinguishable arguments, or alternatively look at
page 140-142 for a table providing a summary.
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freedom of speech, on technological change (and therefore growth) is one area where I am hopeful to
do more research. I have labelled one of the effects identified in my master thesis the “Mill-effect”,
after drawing somewhat on ideas from John Stuart Mill’s “On Liberty” (1974), and connect these
ideas with insights on the factors behind technological change from evolutionary economics (see for
example Fagerberg (2002) or Nelson (2005)). Insights I will draw upon in theoretical work come
from as different texts as Aristotle (2000), Beetham (1999), Chabal and Daloz (1994), Evans (1995),
Huntington (1968), Johnson (1987), Karl (1997), Lijphart (2000), Mokyr (1990), North (1991, 2005),
Olson (1993), Przeworski (2003), Putnam (1993), Romer (1990), Sah and Stiglitz (1986), Schumpeter
(1976), Solow (1956) and Sørensen (1998). This eclecticism will however not lead to a conceptual
chaos, since I possess an organizing framework, which I intend to make even more stringent.
When it comes to empirical analysis, the aim is to test specific hypothesis quantitatively, and seek to
draw generalizations about the way the relationship and several connected aspects are structured, but
with an eye to how contextual factors influence the relationship(-s). Ordinary regression analysis used
on cross section samples runs into a host of problems when used on cross-national evidence (Knutsen,
2006a:178-182). Earlier I have used pooled cross-sectional – time-series techniques to incorporate
variation along the time dimension in the evidence base. I will in my PhD thesis go further in use of
complex, quantitative methodology: One obvious extension is to better take into account reverse
causality, by using multiple regression frameworks like Wacziarg and Tavarez (2002), or use
probability models to control for “selection problems” on the political regime variable in the spirit of
Przeworski et al (2000). Another is the Instrumental Variables approach. The idea here is to isolate
causal effects from independent to dependent variable through using instruments, which are
“exogenously determined” and correlated with the independent variable, but not otherwise directly
related to the dependent variable. There has been attempts at this in the literature on political regimes
and growth earlier (Helliwell, 1994), but the main task is to find good instruments. A 2SLS-approach
with a mix of instruments will probably be followed. One interesting aspect of the empirical work is
to test the relevance of the theoretically proposed mechanisms through which political regime affects
economic growth. The technique of growth accounting but also path analysis will be used.
There are however two other very interesting types of methodological techniques that break with the
regression framework, which I am determined to utilize. One type is matching-techniques, used in
political economic work by Persson and Tabellini (2003), but never used as far as I know to analyze
the problem question here. This technique, which underlying idea resembles experimental approaches,
tries to isolate the effect of the independent variable on the dependent, by comparing a country X
with other countries that have similar traits on other variables but that are dissimilar on the relevant
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independent variable, here political regime . What “similarity” means is determined by among others
the usage of probability functions. Matching-techniques have the advantage of not assuming
“linearity” in effect when studying the relationship, and are therefore more sensitive to contextrelated issues. Another interesting “non-linear” methodology, specifically for finding interaction
effects is the “Boolean Approach to Qualitative Comparison” promoted by Charles Ragin (1987). It
will probably be less relevant to pinning down estimates of sizes of effects, since it craves
dichotomization of variables, but it could prove an interesting supplementary tool, in finding
important contextual factors influencing the main relationship and narrower related aspects.
However, I would dare make the claim that much of the quantitative literature on the subject has not
paid sufficient attention to the relevance of context (Knutsen, 2006a). There are good reasons to
believe that the ideal type African authoritarian, neo-patrimonial regime is much more adverse to
economic growth than the ideal type Asian authoritarian regime, and that democracy has had a
growth enhancing effect on the former continent, but not on the latter (Knutsen, 2006a:241-258). In
my PhD.-thesis, I will significantly expand my work on the (difficult) Africa-Asia comparison. I will
do so by more closely scrutinizing the general and central traits of different political regimes on the
two continents, and I will work with at least four (simplified: low and high growth democracy, low
and high growth authoritarian regime) strategically picked cases in order to better understand and also
illustrate relevant mechanisms and processes that can be hard to identify with quantitative analysis,
especially the political decision making processes. If time allows it and it proves to be important for
data collection, I will do periods of field-work in some of the countries I will perform land-studies on.
I have not settled for particular countries yet, but some potential candidates are Singapore, Vietnam,
the Philippines, Botswana, Mauritius, Togo and Zimbabwe. I take the proposed complementarities of
qualitative and quantitative methodology seriously, and intend to make use of both general
approaches in order to “maximize understanding” of the effects of political regimes on the economy.
In conclusion, my thesis will contribute to this dynamic field of research through establishing a
theoretical framework that will be both inclusive and coherent. It will contribute empirically, by
analyzing the most extensive data set yet explored with quantitative techniques, some of whom never
used in this field before. Several specifications of data sets and operationalizations of key variables
will be tested. The temporally most extensive samples will have a time span of more than 55 years,
and cross-section samples from after the Cold War’s end will contain more than 160 countries. The
study will elaborate more closely on the different mechanisms and intermediate variables than has
been done before. The study will also contextualize the relationship in a better manner than much of
the earlier research performed.
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4.
Literature
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