Revisiting the Democracy– Economic Growth Nexus: A Spatial Perspective

Novita Rinusara

doi:10.37680/ijief.v6i1.9696

Authors

Novita Rinusara Universitas Diponegoro

DOI:

https://doi.org/10.37680/ijief.v6i1.9696

Keywords:

regional economy, spatial econometrics, spatial error model, Indonesia Democracy Index

Abstract

Regional economy is influenced not only by local factors but also by neighboring factors. This study examines the effect of the Indonesia Democracy Index (IDI) on Provincial Gross Regional Domestic Products (GRDP) in Indonesia from 2016 to 2023. Using both Ordinary Least Square (OLS) and the Spatial Error Model (SEM), this study is one step forward to understanding in ordinary and spatial approach. This study has Average Years of School, Life Expectancy, Domestic Investment, Foreign Investment, Length of Road, and Population Density as control variables, the analysis finds that democracy has a statistically significant negative effect on the provincial economy. But most of the previous studies found the opposite, democracy has a positive effect on the economy. Additionally, the increasing Moran’s I values for IDI indicate a growing level of spatial dependence over time analysis. These findings highlight the importance of incorporating spatial dynamics into economic analysis, as unobserved factors associated with democratic conditions appear to be spatially correlated.

References

Abdellatif, A. M. (2003). Good governance and its relationship to democracy and economic development. Global Forum III on Fighting Corruption and Safeguarding Integrity, Seoul , 31.

Acemoglu, D., Naidu, S., Restrepo, P., & Robinson, J. A. (2019). Democracy Does Cause Growth. Journal of Political Economy, 127(1), 47–100. https://doi.org/10.1086/700936

Adams, S. (2009). Foreign Direct investment, domestic investment, and economic growth in Sub-Saharan Africa. Journal of Policy Modeling, 31(6), 939–949. https://doi.org/10.1016/j.jpolmod.2009.03.003

Arat, Z. F. (1988). Democracy and Economic Development: Modernization Theory Revisited. Comparative Politics, 21(1), 21. https://doi.org/10.2307/422069

Bakari, S. (2017). The impact of domestic investment on economic growth: New evidence from Malaysia. Journal of Smart Economic Growth, 2(2), 105–121.

Bakari, S. (2018). The impact of domestic investment on economic growth new policy analysis from Algeria. Bulletin of Economic Theory and Analysis, 3(1), 35–51.

Barro, R. J. (2001). Human Capital and Growth. American Economic Review, 91(2), 12–17. https://doi.org/10.1257/aer.91.2.12

Barro, R. J. (2002). Education as a determinant of economic growth. In Education as a determinant of economic growth.

Barro, R. J. (2003). Determinants of economic growth in a panel of countries. Annals of Economics and Finance, 4, 231–274.

Baum, M. A., & Lake, D. A. (2003). The Political Economy of Growth: Democracy and Human Capital. American Journal of Political Science, 47(2), 333–347. https://doi.org/10.1111/1540-5907.00023

BEERBOHM, E. (2015). Is Democratic Leadership Possible? American Political Science Review, 109(4), 639–652. https://doi.org/10.1017/S0003055415000398

Bhagwati, J. (1995). Democracy and Development : New Thinking on an Old Question. Indian Economic Review, 30(1), 1–18.

Bils, M., & Klenow, P. J. (2000). Does Schooling Cause Growth? American Economic Review, 90(5), 1160–1183. https://doi.org/10.1257/aer.90.5.1160

Biyase, M., & Malesa, M. (2019). Life expectancy and economic growth: Evidence from the Southern African development community. Economia Internazionale/International Economics, 72(3), 351–366.

Bloom, D., Canning, D., & Sevilla, J. (2001). The Effect of Health on Economic Growth: Theory and Evidence. https://doi.org/10.3386/w8587

Bloom, D. E., Kuhn, M., & Prettner, K. (2018). Health and economic growth (IZA Discussion Paper).

Burkhart, R. E., & Lewis-Beck, M. S. (1994). Comparative Democracy: The Economic Development Thesis. American Political Science Review, 88(4), 903–910. https://doi.org/10.2307/2082715

Chen, L., Yu, L., Yin, J., & Xi, M. (2023). Impact of Population Density on Spatial Differences in the Economic Growth of Urban Agglomerations: The Case of Guanzhong Plain Urban Agglomeration, China. Sustainability, 15(19), 14601. https://doi.org/10.3390/su151914601

Dahl, R. A. (2020). On democracy. Yale University Press.

De Haan, J., & Siermann, C. L. J. (1996). New evidence on the relationship between democracy and economic growth. Public Choice, 86(1–2), 175–198. https://doi.org/10.1007/BF00114881

de la Croix, D., & Licandro, O. (1999). Life expectancy and endogenous growth. Economics Letters, 65(2), 255–263. https://doi.org/10.1016/S0165-1765(99)00139-1

Deole, S. S., & Gallaa, A. E. (2015). Population density, optimal infrastructure and economic growth.

Dix, R. H. (1994). History and Democracy Revisited. Comparative Politics, 27(1), 91. https://doi.org/10.2307/422219

Doucouliagos, H., & Ulubaşoğlu, M. A. (2008). Democracy and Economic Growth: A Meta‐Analysis. American Journal of Political Science, 52(1), 61–83. https://doi.org/10.1111/j.1540-5907.2007.00299.x

Ecevit, E. (2013). The impact of life expectancy on economic growth: Panel cointegration and causality analyses for OECD countries. The International Journal of Social Sciences, 16(1), 1–14.

Erich Weede. (1983). The Impact of Democracy on Economic Growth: Some Evidence from Cross‐National Analysis. Kyklos, 36(1), 21–39. https://doi.org/10.1111/j.1467-6435.1983.tb02659.x

Familoni, K. A. (2006). The role of economic and social infrastructure in economic development: A global view. Journal of Economic Perspectives, 6(4), 11–32.

Gerring, J., Bond, P., Barndt, W. T., & Moreno, C. (2005). Democracy and Economic Growth: A Historical Perspective. World Politics, 57(3), 323–364. https://doi.org/10.1353/wp.2006.0002

Ghardallou, W., & Sridi, D. (2020). Democracy and Economic Growth: a Literature Review. Journal of the Knowledge Economy, 11(3), 982–1002. https://doi.org/10.1007/s13132-019-00594-4

Ghazali, A. (2010). Analyzing the relationship between foreign direct investment domestic investment and economic growth for Pakistan. International Research Journal of Finance and Economics, 47(1), 123–131.

Hanushek, E. A., & Woessmann, L. (2020). Education, knowledge capital, and economic growth. In The Economics of Education (pp. 171–182). Elsevier. https://doi.org/10.1016/B978-0-12-815391-8.00014-8

Hanushek, E., & Woessmann, L. (2007). The Role of School Improvement in Economic Development. https://doi.org/10.3386/w12832

Helliwell, J. F. (1994). Empirical Linkages Between Democracy and Economic Growth. British Journal of Political Science, 24(2), 225–248. https://doi.org/10.1017/S0007123400009790

Heo, U., & Tan, A. C. (2001). Democracy and Economic Growth: A Causal Analysis. Comparative Politics, 33(4), 463. https://doi.org/10.2307/422444

Ilegbinosa, I. A., Micheal, A., & Watson, S. I. (2003). ). Domestic investment and economic growth in Nigeria from 1970-2013: An econometric analysis. Canadian Social Science, 11(6), 70–79.

Jenco, L. K. (2003). Thoreau’s Critique of Democracy. The Review of Politics, 65(3), 355–381. https://doi.org/10.1017/S0034670500038286

Kessides, C. (1993). The contributions of infrastructure to economic development: A review of experience and policy implications.

Knutsen, C. H. (2012). Democracy and economic growth: A survey of arguments and results. International Area Studies Review, 15(4), 393–415.

Kolahchi, Z., De Domenico, M., Uddin, L. Q., Cauda, V., Grossmann, I., Lacasa, L., Grancini, G., Mahmoudi, M., & Rezaei, N. (2021). COVID-19 and Its Global Economic Impact (pp. 825–837). https://doi.org/10.1007/978-3-030-63761-3_46

König, M., & Winkler, A. (2021). COVID-19: Lockdowns, Fatality Rates and GDP Growth. Intereconomics, 56(1), 32–39. https://doi.org/10.1007/s10272-021-0948-y

KRIECKHAUS, J. (2006). Democracy and Economic Growth: How Regional Context Influences Regime Effects. British Journal of Political Science, 36(2), 317–340. https://doi.org/10.1017/S0007123406000172

Krueger, A. B., & Lindahl, M. (2001). Education for Growth: Why and for Whom? Journal of Economic Literature, 39(4), 1101–1136. https://doi.org/10.1257/jel.39.4.1101

Lean, H. H., & Tan, B. W. (2011). Linkages between Foreign Direct Investment, Domestic Investment and Economic Growth in Malaysia. Journal of Economic Cooperation & Development, 32(4).

LEBLANG, D. A. (1997). Political Democracy and Economic Growth: Pooled Cross-Sectional and Time-Series Evidence. British Journal of Political Science, 27(3), 453–472. https://doi.org/10.1017/S0007123497210215

Lin, T.-C. (2003). Education, technical progress, and economic growth: the case of Taiwan. Economics of Education Review, 22(2), 213–220. https://doi.org/10.1016/S0272-7757(02)00030-4

Mankiw, N. G. (2015). Macroeconomics (9th ed.). Worth Publishers.

Narayan, P. K., Narayan, S., & Smyth, R. (2011). Does democracy facilitate economic growth or does economic growth facilitate democracy? An empirical study of Sub-Saharan Africa. Economic Modelling, 28(3), 900–910. https://doi.org/10.1016/j.econmod.2010.11.004

Naseer, S., Khalid, S., Parveen, S., Abbass, K., Song, H., & Achim, M. V. (2023). COVID-19 outbreak: Impact on global economy. Frontiers in Public Health, 10. https://doi.org/10.3389/fpubh.2022.1009393

Nelson, B. (2024). Democracy and Defiance: Rancière, Lefort, Abensour and the Antinomies of Politics. Edinburgh University Press.

Ng, C. P., Law, T. H. , Jakarni, F. M., & Kulanthayan, S. (2019, April). Road infrastructure development and economic growth. IOP Conference Series: Materials Science and Engineering .

Ngangue, N., & Manfred, K. (2015). The impact of life expectancy on economic growth in developing countries. Asian Economic and Financial Review. Asian Economic and Financial Review, 5(4), 653.

Peter, S., Rita, E., & Edith, M. (2015). The impact of road transportation infrastructure on economic growth in Nigeria. . International Journal of Management and Commerce Innovations, 3(1), 673–680.

Przeworski, A. (2004). Democracy and economic development.

Przeworski, A. (2019). Crises of democracy. Cambridge University Press.

Queiroz, C. A., & Gautam, S. (1992). Road infrastructure and economic development: some diagnostic indicators (World Bank Publications).

Reza, F., & Widodo, T. (2013). THE IMPACT OF EDUCATION ON ECONOMIC GROWTH IN INDONESIA. Journal of Indonesian Economy & Business, 28(1).

Rodrik, D. (1999). Democracy and economic performance. In Democracy and economic performance (pp. 707–738). Harvard University.

Sabia, D. (2006). Utopian Visions of Democracy. Contemporary Justice Review, 9(1), 81–101. https://doi.org/10.1080/10282580600565021

Santas, G. (2007). PLATO’S CRITICISMS OF DEMOCRACY IN THE REPUBLIC. Social Philosophy and Policy, 24(2), 70–89. https://doi.org/10.1017/S0265052507070173

Sianesi, B., & Reenen, J. Van. (2003). The Returns to Education: Macroeconomics. Journal of Economic Surveys, 17(2), 157–200. https://doi.org/10.1111/1467-6419.00192

Tang, S., Selvanathan, E. A., & Selvanathan, S. (2008). Foreign Direct Investment, Domestic Investment and Economic Growth in China: A Time Series Analysis. The World Economy, 31(10), 1292–1309. https://doi.org/10.1111/j.1467-9701.2008.01129.x

Tavares, J., & Wacziarg, R. (2001). How democracy affects growth. European Economic Review, 45(8), 1341–1378. https://doi.org/10.1016/S0014-2921(00)00093-3

Tobler, W. R. (1970). A Computer Movie Simulating Urban Growth in the Detroit Region. Economic Geography, 46, 234. https://doi.org/10.2307/143141

Tsamadias, C., & Prontzas, P. (2012). The effect of education on economic growth in Greece over the 1960–2000 period. Education Economics, 20(5), 522–537. https://doi.org/10.1080/09645292.2011.557906

Wang, C., Lim, M. K., Zhang, X., Zhao, L., & Lee, P. T.-W. (2020). Railway and road infrastructure in the Belt and Road Initiative countries: Estimating the impact of transport infrastructure on economic growth. Transportation Research Part A: Policy and Practice, 134, 288–307. https://doi.org/10.1016/j.tra.2020.02.009

Weil, D. N. (2014). Health and Economic Growth (pp. 623–682). https://doi.org/10.1016/B978-0-444-53540-5.00003-3

Yegorov, Y. (2015). Economic Role of Population Density. 55th Congress of the European Regional Science Association: “World Renaissance: Changing Roles for People and Places”,.