Curse of Democracy: Evidence from the 21st Century
claude.iconAccording to a study by Yusuke Narita et al., an analysis using the instrumental variables method suggests that economic growth is lower in countries with higher degrees of democracy in the 21st century, and that causality is also higher in the 2020 Corona disaster, with more deaths and greater economic damage. This study suggests that the relationship between democracy and economic growth has changed since the 20th century and raises the need to rethink democracy. However, there is room for arbitrariness in the selection of variables, and further examination is required. claude.icon
1. during the period 2001-2019, countries with a higher degree of democracy tended to have lower economic growth rates. This negative correlation is a new phenomenon not seen in the 1980s or 1990s.
2. for 2020, countries with higher levels of democracy had larger GDP declines and also had higher mortality rates from the novel coronavirus.
3. an analysis of five operational variables, including European settler mortality, population density in the 1500s, origin of the legal system, use of English and European languages, and the availability of certain crops and minerals, suggested a negative causal relationship from democracy to economic growth and public health.
4. sluggish investment and trade were suggested as mechanisms by which democracies could impede economic growth; for 2020, the backwardness of new coronavirus control measures in democracies may be a contributing factor to the spread of health problems.
5. These findings contradict conventional wisdom on democracy and suggest that there may have been a structural change in the mechanism of economic growth in the 21st century. However, they do not affirm non-democracy, but rather suggest the need for qualitative improvements in democracy. nishio.icon
"This negative correlation is a new phenomenon not seen in the 1980s or 1990s."
"The possibility of structural changes in the mechanism of economic growth in the 21st century."
More on this.
claude.iconYes, the paper suggests that the relationship between democracy and economic growth has changed in the 21st century.
Analysis of data from the 1980s and 1990s showed no negative correlation between the degree of democracy and the rate of economic growth. In other words, there were no significant differences in the economic performance of democracies and non-democracies during this period.
After 2001, however, there was a turnaround and a clear trend became apparent: the higher the degree of democracy, the lower the economic growth rate. This trend has been consistently observed from 2001 to 2019.
Furthermore, the data for 2020 show that the more democratic countries are, the greater the economic impact of the spread of the new coronavirus, and the more severe the decline in GDP growth.
Based on the above facts, the paper points out that the relationship between democracy and economic growth may have changed structurally in the 21st century. In other words, while democracy did not tend to inhibit economic growth until the 20th century, a new inhibiting factor has emerged in the 21st century.
The paper attributes this change to weak investment and trade in democracies and, with respect to 2020, the backwardness in the fight against the new coronavirus, which may make it harder for democracies to be competitive in the international economy of the 21st century.
However, the paper is cautious, saying that this does not mean that it endorses undemocratic regimes. Rather, the paper argues that the quality of democracy must be improved in a way that does not impede economic growth, and that the nature of democracy in the 21st century is being questioned.
nishio.iconWhy do investment and trade slump?
claude.iconThe paper offers several hypotheses about the mechanisms by which investment and trade have stagnated in democracies in the 21st century.
First, it has been suggested that in democracies, each change of government increases policy uncertainty, which may cause companies to second-guess their long-term investments. In a democracy, frequent changes of government make it easier to change policy directions, such as deregulation and tax increases. This may cause companies to feel investment risk and hold back on capital investment and other activities.
Second, in democracies, free trade is easily impeded by political pressure from various interest groups. In democracies, pressure groups such as labor unions have more political influence and are more likely to adopt protectionist policies that run counter to trade liberalization. This means that democracies may not fully reap the benefits of the international division of labor, and trade may stagnate. Third, the study also suggests that income redistribution policies in democracies put pressure on public finances and tend to neglect government spending on infrastructure investment and other productivity-enhancing expenditures. Democracies tend to increase fiscal spending on social security and other programs to gain popularity with voters, while neglecting to improve roads, ports, industrial parks, and other infrastructure necessary for economic growth. This may be hindering corporate investment and also causing a decline in export competitiveness. These hypotheses, however, are only theoretical deductions and have not yet received sufficient empirical support. The paper also states that elucidating the mechanisms by which democracy impedes investment and trade is an important research issue for political economy in the 21st century. Further deepening of empirical research will be required.
nishio.icon"Furthermore, we find that this correlation is also causal." Rationale.
claude.iconThe paper argues that the negative correlation between democracy and economic growth is likely to be a causal relationship, not mere coincidence. As evidence for this, the paper presents the results of an analysis using an econometric technique called the instrumental variables method. The manipulated variable method is a method of estimating the causal relationship between a variable X and Y using another variable Z that affects X but does not directly affect Y. The condition that Z must satisfy is that it is not correlated with a disturbance factor U that affects both X and Y. This Z is called the operating variable.
In this paper, the variable representing the degree of democracy is the explained variable X, the rate of economic growth is the explanatory variable Y, and the following five variables are used as the operating variables Z
Mortality of European settlers
Population density in the 1500s
Origin of the legal system (Anglo-American law or not)
Percentage of English and European languages spoken
Production potential of specific crops and minerals
These variables are likely to have influenced the degree of democracy throughout history. On the other hand, these variables are unlikely to have a direct impact on contemporary economic growth. Therefore, the paper argues that they meet the conditions for operating variables that are uncorrelated with disturbing factors that affect both the degree of democracy and the rate of economic growth.
The results of the operational variables estimation using these five variables showed that the higher the degree of democracy, the lower the rate of economic growth, regardless of which variable was used. The paper concludes that this result suggests a negative causal relationship from democracy to economic growth, since the instrumental variables method can estimate causality after eliminating the effects of confounding factors.
This is the basis for the paper's argument. However, even the control variable method is not perfect, and arbitrariness remains in the selection of variables. The paper urges caution on this point and states that careful verification is still needed.
narita_yusuke When I try to show that "democracies have more corona deaths and lower economic growth in the last year," I often get the following Otsu W." which expands on the super exception of the corona year. No, it is not. For the past 20 years, democracies have been stuck in a doldrums with lower economic growth rates than despotic countries. Take a look at this chart. https://pbs.twimg.com/media/E0SCe50VUAIkGxN?format=jpg&name=medium#.png
narita_yusuke new paper/the cause of defeat is democracy The more democratic countries that listen to public opinion are losing people in the coronas and last year's economic growth rate is also lower. Furthermore, we find that this correlation is also causal. It is politics as much as viruses that kill human lives and economies. I'm collaborating with an amazing college student, Sudo-san. http://bit.ly/3v1iIdH https://pbs.twimg.com/media/EzF6tsTVkAMoHOF?format=jpg&name=medium#.png
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