The Influence of Political Structure on Economic Growth

The political system of a country shapes its economic and legal systems. In general, modern history has seen economies flourish under democratic societies. This seems to be true even for countries that are not democracies such as China or Russia.

Looking at the history of nations seems to indicate that there are some complexities to the association of economic growth and democracy. Research economist have found that correlation does not imply causation. The Koreas, as an example, were under dictatorial regimes for many years. After 1980 the incomes of these two countries began to diverge just as South Korea began democratizing, while still dictatorial or military rule. South Koreas current prosperity is not just due to democracy alone, but also to better policy choices and development decisions of their dictators. Other countries have found that, as Korea has seen, a homogeneous population change to heterogeneous forces dictators or other autocratic leaders towards democracy or extinction, as their small support base can’t survive in a heterogeneous society moving to economic expansion and rights.

Many researchers tend to agree that communism or socialist political systems have a negative impact on the economic productivity of the country. Communism is just a political system, however, so why then is the economic growth poor under this system. Mechanisms related to the countries starting GDP, trade openness, taxes, foreign investment, human investment related to education, life expectancy, etc. all are inferior to democratic nations at whatever year is used as a start point of research. Because of this, modern communism and socialist systems all lag behind in economic growth compared to democratic societies.

Socialist nations like Venezuela only competed due to the boom of oil demand which bailed out their failing economy. China and Russia allow free market transaction for many of their business despite their communist political system.