Question

What is the explanation of this statement : "While it is possible to argue that demcracy is not a necessary pre-condition for a free market economy in which property rights are protected. Subsequent economic growth often leads to establishment of a democratic regime."

Answer 1

The free market economy stimulate greater economy growth. Free market is an idealized system where price for goods and services are determined by open market and consumers. It is free from government intervention. According to the statement political economy influence economic growth. Country's economic development is function of its economic and political system. Economic freedom associated with market economy creates greater incentive for innovation and entrepreneurship. There is strong relationship between democracy and economic growth.

However innovation and entrepreneurship require strong property rights. Without these rights businesses have fear of risk about the profit from there innovative effort. The inadequate property protection hinders economic growth. Thus, strong property rights are required to bring in individuals with businesses and others to market as they will know that there assets are protected. The democratic regime are more conducive to long term economic growth than dictatorship as property rights are secured in democracy. Such that economic growth leads to democratic regime.