The Daily Star report on CPD study – the impact of democracy on economic growth, published on Thursday, 10 October 2013.
Democracy’s impact on economic growth—not so much: study
Star Business Report
Democracy in Bangladesh does not seem to have a statistically significant impact on economic growth as elected regimes become authoritarian in nature, inflicting a substantial negative impact on the economy, a new study found.
The study by three researchers from the Centre for Policy Dialogue (CPD) said the reasons behind democracy having no significant impact on economic growth in the country are also likely causing autocracy to have a negative impact.
“This is supplemented by the fact that in Bangladesh, even under a democratic regime, policy making institutions required to promote and foster economic growth do not alter their decision making behaviour and continue to be inefficient,” it said.
The study said this could be as a result of inefficient economic policy design, lack of a consensus on economic policy and policy continuation, inadequate democratic decision making process, pressures from lobbying groups, weak institutions and a lack of institutional reforms required to promote economic growth.
Debapriya Bhattacharya, distinguished fellow at CPD, Shouro Dasgupta, junior consultant, and Dwitiya Jawher Neethi, programme associate, conducted the study.
The study, ‘Does democracy impact economic growth? Exploring the Case of Bangladesh’ was published by CPD and Chr. Michelsen Institute in Norway under a joint initiative.
The study said major expansion in the export-oriented garments sector (from $31.6 million in 1983-84 to $21.52 billion in 2012-13) and the contribution of increased remittance from expatriate workers (from $237 million in 1979-80 to $14.5 billion in 2012-13), along with trebling of crop production in the last four decades had been the major drivers of economic development.
As a result, while growth in the services sector remained consistently high and agricultural growth had been appreciable, industrial growth took the lead in bringing about changes in the sector-wise composition of the country’s economy.
Bangladesh provides a unique case to study the democracy and economic growth relationship in the sense that there have been periods of both democracy and autocracy in the last three decades, the paper said.
These regimes were broadly divided into three phases: elected civilian regime (1972-1975), military and quasi military rule (1975-1990) and democratic civilian governance (1991-2009).
The economic growth rate was 3.4 percent in the 1980s, 4.8 percent in the 1990s and 5.8 percent in the 2000s.
Between 1980 and 2010, the GDP size expanded four-fold, when the GDP growth rate increased by 1 percentage point each decade on average.
During the democratic period (1991-2011), the average GDP growth was 1.6 percentage points higher than in the military and quasi-military periods. Average government expenditure during the two decades of democracy was 4.9 percent of GDP, compared to 4.3 percent in the preceding decade.
The researchers said it is often argued that democracy in Bangladesh is essentially limited to casting votes once in five years; this could be another reason why democratic stock has no significant impact on economic growth in Bangladesh as yet.
Rather, one year after the national elections, democratically elected executive power tends to become autocratic in practice, the study said.
“At the same time, investment or capital formation in the economy has remained low and democratic regimes have often failed to promote investment friendly environments, which in turn, affected the employment scenario,” said the study.