Democracy, Trade openness and economic growth: A Cross-Country study George Anupama Assistant Professor, Kristu Jayanti College, Bangalore, Karnataka, India. E-mail: andy.91.george@gmail.com Online published on 8 May, 2019. Abstract There was an upsurge of democratization among countries from the start of the 1970’s however; this trend has seen an upturn especially after the sub-prime crisis of 2008. The Report of the Economist Intelligence Unit (2015) shows a clear indication of declining attitudes connected to the propagation of democracy such as reduced media freedoms, governance and even political participation. In terms of economic growth from the 1960s to 2000s, some countries experienced stagnation however most of the countries experienced growth in their GDPs. With this background, countries can be classified into two categories, one where countries show an inverse relation between democracy and economic growth and the other where countries show a positive relation. This paper therefore tries to demystify the impact of democracy on economic growth. A third variable, trade openness is considered, as it has a considerable impact in some ways on both democracy and economic growth. Hence, this study undertakes a deeper understanding of the endogeneity between democracy, trade openness and economic growth. This paper differentiates between countries by categorizing them into Democratic and Non-democratic countries according to the democracy index as stipulated by The Economist Intelligence Unit. The study employed the three-stage least-squares estimation and used aggregate data covering 56 countries from 1996 to 2012. The model thus developed intended to assess the long-term interrelationships between democracy trade openness and economic growth. The factor that distinguishes this study from the previous body of literature is the simultaneous approach that it adopts, which combines the study of economic growth and trade openness with that of economic growth and democracy. The study shows that democracy has a direct negative impact on growth but a positive indirect impact on growth via the channel of trade openness. Top Keywords Democracy, Trade openness, Growth, 3SLS, Instrumental Variables, R software. Top |