Do we need a dictator?
Ling Shen1 and Marc Schiffbauer2
PRELIMINARY VERSION
First version: 01.08.2006
This version: 30.9.2007
Abstract
A democratic society is often regarded as a prerequisite for economic growth and development.
Yet, most empirical studies are not able to identify a positive link between GDP-growth and
democracy indexes. In addition, it is an empirical stylized fact that (i) most developing countries
are dictatorships and (ii) many poor dictatorships experienced high growth performances and
emerged from poverty such as South Korea, China, Egypt, etc. Against this background, it is of
interest to ask under which conditions a poor dictatorship will induce a higher economic growth
rate than a democratic economy. To answer this question, we compare the endogenous growth
paths of two economies that exclusively differ in their political regimes in the context of an
overlapping-generations model. More specifically, 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 (e.g. subsistence level of consumption) and (iii) a
dictator that cares about her income or the income of her dynasty tomorrow (compare McGuire
and Olson (1996)). In this framework, we demonstrate that poor democracies exhibit a lower
equilibrium growth rate than equally poor dictatorships. Moreover, there exists a particular
threshold value in income such that the growth-reducing impact of dictatorial consumption
(corruption) outweighs the higher (initial) infrastructure investment. Thereafter, the growth rate
under democracy dominates the one in dictatorship for plausible realizations of the model
parameters.
CHECK COMPLETE TEXT ONLINE