Democracy and poverty reduction

Abstract

The past decade was witness to the rapid economic growth of countries whose political systems deviate from conventional democratic philosophy. Countries such as Taiwan, Singapore, and South Korea, among others, have become big economies rivaling major players like the United States and the United Kingdom. On the other hand, democratic, low-income countries have experienced relatively sluggish growth. In this paper, we explore the influence of democracy and political freedom on economic growth, utilizing poverty reduction as its indicator. We will focus on identifying the requisites of a functioning democracy within the context of developing nations that will enable it to effectively reduce poverty. Utilizing the 2-stage least squares method of estimation, our findings suggest that democracy, in general, has a negative influence on poverty reduction for developing countries. However, when complemented with trade openness, primary education, regulatory quality, effective governance, and voice and accountability, the outcome becomes positive.

JEL classification: I30, O43