Does Democracy Matter for Economic Growth? Empirical Evidence from Indonesia
Does Democracy Matter for Economic Growth? Empirical Evidence from Indonesia

Summary/Abstract: This study aims to empirically examine the mediating effect of investment on the relationship between democracy indices (i.e., civil freedom, political freedom, and democratic institutions) and economic growth across 33 provinces in Indonesia over the period from 2012 to 2020. Using a dynamic panel data regression of the Generalized Method of Moments (GMM) within the path analysis framework, the study found that investment, political freedom, and democratic institutions have promoted Indonesia’s economic growth, while civil freedom has deteriorated the economic growth of the country. In addition, investment has partially mediated the effect of the democracy indices on Indonesian economic growth. These results suggest the importance of providing more political freedom and democratic institutions and limiting civil freedom to promote investment and consequently boost economic growth.

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