Does Economic Growth Need Democracy? An Application on Islamic Countries with System-GMM Approach

Abstract

There is growing body of literature over the last decade years examining the question “Does democracy induce economic performance or slow it down? If so, what way it does? This relationship studied by social scientists especially since 19th centuries have been become more of an issue with democracy movements occurring middle east. Previous studies have pointed out there may exist the existence of either positive or negative relationship between these two variables. The proponents of democratization put forward that the democracy fosters economic growth by increasing the accumulation of human capital, reducing income inequality, providing with political stability and preventing social disasters. In this context, this paper searches for this relationship based on Islamic Countries containing totally 49 countries. The study covers data for years between 2010 and 2016 and analysis this relationship through Generalized Moment Methods (GMM). The results of this study show that there is a positive relationship between them and one-point increase in democracy index causes averagely 0.45 basis point rise on the growth of GDP Per Capita for related countries.