Abstract:
The relationship between democracy and economic growth has been an unsolved mystery in the literature during the last two decades. Most research has focused on cross-country data where a procedural definition of democracy has been used and the results indicate a small but negative and non-linear effect from democracy on growth.
In this paper I focus one a single region (Hong Kong) and define an index for democracy generated from a more complex system of dimensions than what has previously been used. Based on similar framework as Barro (1991, 1996), I find that democracy has the same non-linear effect on growth as is previously found, but the turning point is at a significantly higher level in Hong Kong than what Barro's cross-country estimate suggests. The consequence of this is that a conclusion of a small and negative effect from democracy on economic growth seems to untrue for Hong Kong.