Economic benefits of rule of law and democracy

13/09/2019

There is a widespread view that stronger democratic institutions and civil liberties also have a positive impact on economic performance. As a result, it would also be worthwhile for companies to support and invest in organizations and actors that protect civil liberties and democracy. However, the above relation is not that simple.

According to various international assessments, the development of democratic institutions, political and economic freedoms is diverse in the region. The general view is that democracy is conducive to economic growth, but the question arises whether it is worthwhile for companies to proactively support political freedoms - for example through the support of civil society actors.

In our analysis, we reviewed the literature on the subject. The main message is that while a number of factors influence the impact of liberties and stronger democracy on economic growth, experience from different regions all point to the positive impact of good quality (legal) institutions, legal certainty and of the protection of property rights on the economy and thus on the operation of companies. Our analysis was presented by BI senior researcher Petra Reszkető on September 13, 2019, at the Regional Conference of the Center for International Private Enterprise in Munich.

You can read more about the project here.