Marc Schiffbauer

Democracy vs. dictatorship

A democratic society is often regarded as a prerequisite for economic growth and development. Yet, most empirical studies are not capable of identifying a positive link between GDP growth and democracy indexes. In addition, it is a stylized empirical fact that: (i) most developing countries are dictatorships; and (ii) many poor dictatorships have experienced high growth performances and emerged from poverty such as South Korea, China and Egypt. Against this background, it is of interest to analyse in which ways the growth performance between autocratic and democratic economies may differ, in particular among low-income countries. To answer this question, we compare the endogenous growth paths of two economies that differ only in their political regimes in the context of an overlapping generations model. The key features of the model are: (i) a positive bequest motive in the form of investments in education or productive public capital (infrastructure); (ii) a higher marginal (inter-temporal) utility of consumption today versus consumption tomorrow in low-income countries (for example, subsistence level of consumption); and (iii) a dictator that cares about her income or the income of her dynasty tomorrow. In this framework, we demonstrate that poor but large and stable dictatorships exhibit a higher equilibrium growth rate than comparable (equally poor) democracies. Moreover, there exists a particular threshold value in income such that the growth-reducing impact of dictatorial consumption (corruption) outweighs the higher (initial) public investments. Above this, the growth rate under democracy dominates the one in dictatorship.

The Role of Public Policies in Fostering Innovation and Growth: Theory and Empirical Evidence

This survey outlines the literature on economic growth and development with respect to the following questions: (a) To what extent do public policies influence economic growth? (b) Which policy mix might optimize a country’s rate of growth and development? While the importance of identifying the key determinants of economic growth is obvious, a unified theory that matches empirical facts is still missing. It is shown that a successful theory needs to explain why some countries catch up in terms of productivity while others lag behind. This literature review demonstrates that public policies influence a country’s productivity growth rate in several different ways. However, it also demonstrates that policy effects are often far from obvious ex ante. Instead, some detailed knowledge of the stage of developments or country-specific characteristics are necessary to achieve the desired outcomes.