Thursday, April 13, 2006

Is democracy necessary condition for economic ?

Ap wrote an article defending democracy as the necessary condition to achieve economic growth at cafesalemba. Is this always the case?

It is true that institution does affect the economic performance. But which innstitution ? Is it always true for democracy? If this is always true, how could we explain the Singapore economy, certain periods of previous Soeharto era and present growing china economy,and many other examples? Obviously, these examples are not in democratic regime, but they have a remarkable economic performance.

Since there are several counterfactual example, this hyphotesis could fail the external stability test. There must be something that is more reliable variable that could explain the choice of institution and economic growth. I think, the relevant question are :
  1. Does the government commit not to grab everything (by taxing) and give certainty in property right.
  2. credibility of the commitment
Acemoglu (JEL 2003) said that the most important variable is commitment by the government. If there is full commitment, then the issue of institutional choice is not a matter(democracy or autoriter is not the issue/Political Coase Theorem applies and the ruler just choose policy that maximize the eonomic performance conditional on the charateristics of citizen).
Otherwise, if there is partial or no commitment, then the choice of intitutional become matters.

The only set-back in this paper is the credibility issue. If we take into account the credibility issue, then the main factors should be commitment level and credbility issue.

The Dreamer

3 comments:

kadek said...

Mr dreamer, the great economist, I think commitment and institution have causality relationship. How we solve this problem? Whether in that paper explained about this problem and what the solution?

masarcon said...

Democracy is a very good solution to a problem of power and its control. It’s not necessarily a solution to problems of economic development....

a.p. said...

Dreamer, actually, methodologically speaking, in my article I did not defend "as the necessary condition to achieve economic growth." In fact, I cited several studies that support the other side of the arguments.

I did defend democracy, implicitly, but for other reasons.