Abstract:

It is believed that wealth of countries also increases as the level of democratization increases, vice versa. Effects of democracy on the economic structure have been discussed for a long time. In economic growth literature, it can be seen that the effect of democracy has been frequently examined within the scope of economic growth. But, it can be seen that there is no consensus in studies on relationship between democracy and economic growth. In the present study, the effect of democracy on the economic growth was examined via panel data method by using 1972-2016 annually data of 8 emerging market economies. During the analyses, the real GDP represented the economic growth and Freedom House freedom index represented the level of democracy. In this study, the cross sectional dependency was tested using CDLM_1 and CDLM_adj, stationarity of series by using CADF unit root test, and long-term relationships by using Westerlund and Edgerton (2007) cointegration test and long-term relationship was found between the series. The coefficients were estimated using Panel AMG method. The findings indicated that the increase in level of democracy affected the economic growth positively in some countries and negatively in some other countries. Moreover, the causality between the variables was examined by using the test of Emirmahmutoğlu and Köse (2011). Bidirectional causality was observed in most of panel. According to the results, it was found that the increase in democratization level in Brazil, Chile, India, and Turkey positively affected the economic growth. But, in Argentina, China, Indonesia, and South Africa, the increase in democratization level has negative effects on the economic growth. In emerging countries such as Turkey, the sustainable economic growth depends on the presence of strong economic institutions.

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