Democracy and Economic Development: Disentangling the Effect of Elections and Rule of Law

The article provides evidence on how the political settlements—rule of law and elections—would affect the economic development and enhances the economic growth. It empirically investigates whether democracy affects the economic convergence of countries through the quality of institutions: (i) electoral component of democracy, and (ii) rule of law parameters. Investigations differentiate between Islamic and non-Islamic countries. We find that the elections parameter has a first-order effect on economic development; such a relationship is not confirmed for Islamic countries. Rule of law also influences this relationship, but brings less efficient impact to the economic development. Our results are obtained using a sample of 167 countries over the 2010–2012 period.