DEMOCRACY AND ECONOMIC FREEDOM: A STATIC PANEL DATA ANALYSIS OF SOUTH ASIA
DEMOCRACY AND ECONOMIC FREEDOM: A STATIC PANEL DATA ANALYSIS OF SOUTH ASIA

Summary/Abstract: Economic freedom leads to and maintains democracy – this hypothesis popularly known as Hayek-Lipset-Friedman hypothesis has been examined empirically in this study for South Asian region. Using data on economic freedom and political freedom (democracy) for a panel of five South Asian countries over the period 1995-2008, the Granger-causality test confirms that democratic society must be economically free, it does not happen other way round. Applying static panel data estimation technique this study also finds significant positive relationship between democracy and economic freedom and the degree of responsiveness of economic freedom on democracy is found less proportionate in South Asian countries. It is also found that economic prosperity fosters democracy in this region, whereas government spending does not have significant impact on the level of democracy in South Asian countries.

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