Democracy, Good Governance, and Economic Development

The institutional deficit that characterizes so many developing and transitional countries-weak and arbitrary governance, weak protection of civil liberties, and inadequate regulatory and legal framework to guarantee property rights, enforce contracts, and reduce the transaction costs-deprive these countries of needed productive investment and economic growth. Improving the quality of governance is essential for economic development. What types of policies and institutions have the most positive and measurable effects on improving governance? What kinds of institutional arrangements are associated with economic growth and poverty reduction? Research shows that democracy influences economic growth. Specifically, secure private property rights that give incentives to individuals to be productive, institutionalization of the rule of law, especially constraints against executives, and electoral mechanisms that give citizens the ability to evict the ”rascal” are essential to promoting growth. Thus, an obvious corollary is that democratization and decentralization without simultaneous strengthening of property rights and the rule of law may not always lead to effective democratic governance.