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  1. 1. Sadegh Bafandeh Imandoust and Samane Montazeri / International Journal of EngineeringResearch and Applications (IJERA) ISSN: 2248-9622 www.ijera.comVol. 3, Issue 3, May-Jun 2013, pp.1441-14471441 | P a g eDemocracy and Human Development Case Study: OPECmember countries1Sadegh Bafandeh Imandoust and 2Samane Montazeri1Department of Economics, Payame Noor University, Tehran, Iran2MA in Economics from Ferdowsi University of Mashhad, Mashhad, IranAbstractDemocracy is a concept thatencompasses people´s participation in decision-making in their community to determinewhether political, economic, social and culturalstructure, freedom of expression, freedom tocreate coalitions, right to protest and so on.What is more important than others in this areais that in every country, the will of the peoplemust be the foundation of state power that willbe stated through periodic and genuine electionswith universal suffrage and equal held on freevoting procedures.Wealth and income effects of naturalresources on a countrys political institutionsand democracy have always been sources of theimportant issues at the intersection of politicalscience and economics. “Polity2” index whichrefers to the type of regime in countries isconsidered as a representative of the level ofdemocracy.But could the sovereignty of thecountries affected by fluctuations, shocks andchanges of oil prices and graded in the intervalbetween democracy and tyranny of hereditarymonarchy, absolute calibration is in the intervalbetween democracy, autocracy and absolutehereditary monarchy, be a reason of the qualityof life and social welfare of individuals?This paper follows using a panel dataapproach in the period 1996-2010 to assess theimpact of democracy on human developmentindex as a yardstick of the level of developmentin OPEC member countries. Estimation resultsindicate a positive and significant relationshipbetween democracy and its subsets, includingthe political competitions, administrativeregulations and recruitment through freeelections, and the human development level ofthe mentioned countries.Key Words: Democracy, Human development,Panel data, OPEC member countriesJEL Classification: H11, H19, O15I. IntroductionDemocracy is defined as “institutionalarrangement for arriving at political decisions inwhich individuals acquire the power to decide bymeans of a competitive struggle for the people’svote’ (Schumpeter 1942).Dahl (1971) identifies seven essential criteria fordemocracy as:1. Control over governmental decisions aboutpolicy constitutionally vested in elected officials2. Relatively frequent, fair and free elections3. Universal adult suffrage4. The right to run for public office5. Freedom of expression6. Access to alternative sources of information thatare not monopolized by either the governmentor any other single group7. Freedom of association (i.e. the right to form andjoin autonomous associations such as politicalparties, interest groups, etc).Development includes various elementssuch as economic growth, income distribution,human development etc. Human developmentrefers to aggregate welfare of societies, withparticular attention to less advantaged citizens thatits cross-national and historical measure of humandevelopment is relied on the infant mortality rate(IMR), i.e., the number of deaths prior to age oneper 1,000 live births (Gerring et al., 2012). In thefirst human development report (HDR) proposedby Mahbub Ul Haq in 1990, the first humandevelopment index was composed of threefundamental dimensions and according to UnitedNation Development Program it includes: GDP percapita, life expectancy and literacy rate ofindividuals. Menocal (2007) believes that much ofthe answer to the question about the linkagebetween democracy and development will dependon how one defines ‘development’. If one followsSen (1999b) and adopts a definition ofdevelopment as ‘freedom’ – a suitably broaddefinition that incorporates not only economicindicators but also freedoms like human andpolitical rights, social opportunities, transparencyguarantees and protective security, then bydefinition democracy must lead to development.An extremely high correlation between aspects ofsocial structure, such as income, education,religion, on the one hand, and democracy, on theother, is not to be anticipated even on theoreticalgrounds, because to the extent that the politicalsub-system of the society operates autonomously, aparticular political form may persist under
  2. 2. Sadegh Bafandeh Imandoust and Samane Montazeri / International Journal of EngineeringResearch and Applications (IJERA) ISSN: 2248-9622 www.ijera.comVol. 3, Issue 3, May-Jun 2013, pp.1441-14471442 | P a g econditions normally adverse to the emergence ofthat form. Or, a political form may develop becauseof a syndrome of fairly unique historical factors,even though major social characteristics favoranother form. Germany is an example of a nation inwhich the structural changes growingindustrialization, urbanization, wealth, andeducation-all favored the establishment of ademocratic system, but in which a series of adversehistorical events prevented democracy fromsecuring legitimacy in the eyes of many importantsegments of society, and thus weakened Germandemocracys ability to withstand crisis(Lipset,1959). Opponents of a positive nexusbetween democracy and human developmentbelieve that growth is a prerequisite fordevelopment that requires economic surplus formore investment and this is emerged only whenthere is stable, regular and strong politicalgovernance. They generally disagree with people’sparticipation in political issues (Sorensen, 1997).Of course, necessity of democratic investments tomeet the basic needs of humans for developmentcannot be ignored, but does development onlydepend on this?Most of the East Asian developmentalstates may have reached their developmental goalsunder undemocratic conditions, yet in SouthAfrica, a constitutional democracy, the delivery ofthe developmental state will not only have to takeplace in the economic and social spheres, but mustalso deepen democracy. Some scholars remaindeeply skeptical that the East Asian developmental-style reforms can be copied elsewhere. Many moreare unconvinced that developmental states can bereplicated under democratic conditions.Developmental states have mostly beenauthoritarian, or managed in dominant partydemocratic systems. The authoritarian ones usuallyhad a ‘weak and subordinated civil society’, withstates pursuing a ‘varying balance of repression,legitimacy, and performance which appears tosucceed by offering a tradeoff between suchrepression as may exist and the delivery of regularimprovements in material circumstances’(Leftwich, 1996)Within the human development paradigm,people are considered as active subjects of theirown destiny and not passive spoon-fed patients ofsocial welfare institutions. Development rests on‘the ability of people to help themselves and toinfluence the world. Democratic practice is notonly valuable for its own sake, but also forinstrumental reasons. Given the open-endednessand the multi-dimensionality of human well-being,the practice of democracy enables to specify thedimensions of human well-being which are worthbeing promoted. The role of public discussion andinteractions in the emergence of shared values andcommitments is essential in specifying a society’sunderlying values and in choosing the ends ofpolicies (Sen, 1999b).Autocrats ruling over oil-rich states and controllingoil resources may find it easier to sustain politicalpower when oil prices are high. When oil prices arehigh, more resources are available to purchasepolitical support by offering transfers to citizens,more resources are also available to carry outrepressive actions in order to quell oppositionthrough coercive means (Wacziarg, 2011). Markuset al. (2012) identify the effect of natural resourcewealth and income on political institutions as acentral issue at the intersection of economics andpolitical sciences. They state that Countries withgreater net oil exports over GDP see improvementsin democratic institutions following upturns ininternational oil prices. For example, positive oilprice shocks lead to improvements in the Politydemocracy score as well as the sub scores forexecutive constraints, executive recruitment,political competition and a higher probability of ademocratic transition. Hence, this study aims totest, evaluate the relationship between democracyand human development index in OPEC membercountries. The rest of the paper is organized asfollows:In section two an overview of researchesconducted around the world will be discussed;Section three models and variables andmethodology used in this study are presented; Insection four which is the most important part of thecurrent study the estimation results are offered andfinally section five concludes the paper.II. Review of ResearchVollmer and Ziegler (2009) study theimpact of political institutions on non-incomedimension of human development evaluating theirtheory based on the empirical facts in the period1970-2003 through panel data approach. Theyeventually confirm a positive relationship betweendemocratic system and human development.Eliasson (2006) acknowledges development,human right and human security as three factorsthat are counteracted at higher levels and mentions“lack of respect for human rights” as one of thefundamental problems in this regard and “makingrelationship between people and governmentsbased on honesty, accountability” as the onlysolution to improve democracy.Based on much recent work, it is foundout that democracy will improve the quality of lifefor citizens in every country. However, somestudies show some contradictions about this.Gerring et al (2012) develop a series of causalpathways through which democracy might improvesocial welfare, and tests two hypotheses: (a) that acountry’s level of democracy in a given year affects
  3. 3. Sadegh Bafandeh Imandoust and Samane Montazeri / International Journal of EngineeringResearch and Applications (IJERA) ISSN: 2248-9622 www.ijera.comVol. 3, Issue 3, May-Jun 2013, pp.1441-14471443 | P a g eits level of human development and (b) that itsstock of democracy over the past century affects itslevel of human development. Using infantmortality rates as a core measure of humandevelopment, they conduct a series of time-series—cross-national statistical tests of these twohypotheses and find only slight evidence for thefirst proposition, but substantial support for thesecond. Thus, they argue that the best way to thinkabout the relationship between democracy anddevelopment is as a time-dependent, historicalphenomenon.Cohen (1993) mentions that Marxists arevery sensitive to the importance of democracy oneconomic conditions. They believe all political andsocial configurations are determined by theeconomic foundations. Certainly, these purelyeconomic prospects of Marxists cannot be logical,but what is certain is that a definite and positiverelationship exists between democracy andeconomic issues. Lecturer (2008) states there aremany differences between nations withauthoritarian system of governance and those thathave established human rights and democracy. Heexemplifies Nigerians who after spending painfulyears due to accomplishing a non-democratic armyhave found democracy and human rights necessaryfor growth and development.The study of Heo et al. (2012) shows thatthe primary focus on new democratic governmentsin Asia is quite similar to administrativeeconomies. After quantitative reviews theyconclude in the early stages of democratization, itsimpact on economic growth is negative andcertainly insignificant that this result contradictsthe linkage between democracy and economicgrowth in Asian countries. Przeworski et al. (2005)also state that there is no more probability oftransition to democracy for more economicallydeveloped countries, but what happened about thewealthy and oil-rich countries in the Persian Gulf,questioned their findings and views. In this regard,Acemoglu (2005) mentions that democracy doesnot necessarily guarantee economic growth, even inthe short term. In the view of Lipset (2002),economic development has a higher degree indemocratic countries and it provides the field ofincrease in income, security and spread ofeducation.Some of the popular patterns ofcompatibility between democracy and economicdevelopment indicate that if we considerdemocracy a prerequisite of efficient market, then itmay underlie the development in the form ofeconomic growth and lead to realization ofdevelopment indexes i.e. improvement of quality oflife or level of human development (Leftwich,1996). Libman (2011) carried out a case study inRussia about democracy, bureaucracy, andeconomic growth and found a nonlinearrelationship between these variables and also foundthat concentrated governments have everoutperformed the compound and decentralizedgovernments. Finally, according to views of Leite& Weidmann (1999), inefficient and non-democratic governments use oil revenues to coverup the expertise and competence in society. Inpolitical economy this tactic is called“Modernization Effect”.III. ModelIn order to test whether democracy affectsthe human development index of the oil producingcountries, we apply following model:HDRit = α+ µ i + λ t + β1LNlifit + β2POL2 it +β3RCOit+ β4 CORit + Vit (1)Where α, λt, µi and Vit represent intercept, time,cross-section specification and error termrespectively. HDRit is human development index ofcountries which includes the process ofenlarging peoples choices. These choices areunlimited and will vary over time but at all levelsof development, three necessary and vital cases ofthem include having a healthy and long life ,obtaining education and access to resources forhaving the decent living conditions (HumanDevelopment, Research Paper, 2011). LNlifitrepresents the Neperian logarithm of people’s lifeexpectancy at birth which includes the averagenumber of years that an individual expects to livewith regard to the current rate of mortality. POL2itrepresents the way of governance andadministration of countries used as a representativeof the level of democracy of countries (Polity IVProject Home Page, 2012). This variable includesthe simultaneous quality of democratic andauthoritarian power in governmental institutionsand that does not merely show pure governance.Many people mistake in distinguishing concepts ofpolity2 and governance and use theminterchangeably, while governance is “a series ofindividual, institutional, public and private actionsfor planning and managing of affairs or acontinuous process of creating understandingbetween different and contradictory interests thatmoves in form of participatory and consistentmeasures including formal institutions, informalarrangements and social capital of citizens (UN-HABITAT, 2002). Polity2 index which iscalculated by subtracting two indexes ofdemocracy and autocracy, includes values between-10 (hereditary monarchy) and +10 (consolidateddemocracy). CORit is control of corruption index asone of governance indicators is defined as“reduction of public power to obtain privatebenefits” (Kaufmann et al. 2009). RCOit is aweighted index made up of 3 elements ofRegulation of Chief Executive Recruitment
  4. 4. Sadegh Bafandeh Imandoust and Samane Montazeri / International Journal of EngineeringResearch and Applications (IJERA) ISSN: 2248-9622 www.ijera.comVol. 3, Issue 3, May-Jun 2013, pp.1441-14471444 | P a g e(XRREG), Competitiveness of ExecutiveRecruitment (XRCOMP) and Openness ofExecutive Recruitment (XROPEN) whichgenerally indicates rules and regulations,competitiveness and right to opine and selection ofsenior executives and administration officials incountries through elections. It is ranging from 0 to10 and sometimes -66 , -77 and -88 that are usedfor cessation periods of government of occupiedcountries by other countries, war and internaldissension and reduction of influence of centralgovernment and establishment of new institutionsin time of constitutional convention andreferendum, respectively (Polity IV Project, 2011).HypothesisAccording to the literature reviewed above,following hypothesis is formulated:A direct nexus exists between democracy andhuman development in OPEC member countries.IV. Model EstimationIn this section we offer the results ofdifferent tests on the model. It should be noted thatestimations in this study are done based on Baltagi(2008). But before every step it is required toensure a long term equilibrium relationshipbetween variables. To this purpose, Kao co-integration test is utilized. The obtained t-statisticand P_value in Kao test are 1.946 and 0.02respectively that confirms human developmentindex and other explanatory variables in the modelare co-integrated in long term.4.1. Ordinary Least Squares and One -WayError Component ModelIn ordinary least squares estimate, thespecific fixed or random effects of cross sectionsand times are not considered and estimations areonly derived from variables regression, but in oneway error element model the effects are consideredonly in one dimension. In fixed effects model,model estimation is considered with regard tocountries or times as fixed and with no specialdistribution. In other words, in this method ofestimation, the specific features of countries areassumed constant. As observed in Table 1, thesignificance of only the variable (RCO) is shown inform of within (fixed effect) regression.In random effect estimation, the cross-sectional andtime characteristics are distributed over time andunlike fixed effects, are not considered as fixedparameters. The result of this estimation that isbased on generalized least squares (GLS) method ispresented in the form of three estimators Swami -Arora (Swar), Wallace - Hussein (Walhus) andVensik - Captain (Amemiya) . As observed allvariables are significant at level 0.95 in these threemodels.
  5. 5. Sadegh Bafandeh Imandoust and Samane Montazeri / International Journal of EngineeringResearch and Applications (IJERA) ISSN: 2248-9622 www.ijera.comVol. 3, Issue 3, May-Jun 2013, pp.1441-14471445 | P a g eTable1. Estimation results of OLS and one-way fixed and random effects modelvariable OLS Fixed effect(within)Walhus Amemiya SWARLNlif 0.14(34.15)0.10(1.37)0.47*(7.70)0.18*(2.44)0.46*(9.10)POL 0.009(6.15)0.007(1.29)0.03*(7.39)0.01*(2.33)0.03*(8.74)RCO 0.12(2.35)0.10*(4.49)0.11*(4.46)0.10*(4.72)0.11*(5.47)COR 0.002(9.52)0.0001(0.33)0.001*(3.18)0.0003*(0.89)0.001*(3.77)R-20.61 0.94 0.48 0.14 0.464.2. Two -Way Error Component ModelIn the case of two-way fixed effects, the effect ofeach country over time and also the time effect forall ountries are considered to be fixed. In thismodel, individual and time characteristics that areμi and λt respectively will not distribute over timeand behave as fixed parameters. As shown in Table2, the result confirms the significance of allcoefficients of model except β4 by t- statistic 0.66at the level 0.95.Table 2. Estimation results of two-way fixed model4.3. Hausman TestIn “m1” Hausman test, the statistic χ2is obtained49.97 and rejects the null hypothesis of presence ofrandom effect in the model. In other words, GLSestimators (related to random effects) and withinestimators (related to fixed effects) are notcompatible and also the explanatory variablescannot be considered independent from the errorterms over time. Also in “m2”Hausman test,compatibility of GLS and between estimators isrejected too at the confidence level of 0.95. Thus,both tests confirm no random effects in the model.’Table3. Estimation Result of Hausman Test (m1and m2 statistics)4.4. Breusch- Pagan (BP) Test, F (chow) Testand Likelihood- Ratio LR TestIn Breusch- Pagan test three hypothesesare used: H0a: lack of cross effects in the model,H0b: lack of time effects in the model and H0c: lackof individual and time effects or in other wordshaving pool model instead of panel. The calculatedstatistics χ2(equals to 108.23) rejects H0ai.e. oneway model with individual effects is confirmed.Also, the χ2value of 22.25 accepts H0bandexistence of time effects in model. F Chow and LRtest (LR: based on maximum likelihood estimation)were also utilized to assure the correctness of theachieved results. All tests confirm a two way modelLnlif Pol RCO CORWithin0.13*(2.70)0.009*(2.71)0.11*(8.26)0.0001(0.66)R-2= 0.98Variable Consistent Coefficient(m1)Efficient Coefficient(m1)Consistent Coefficient(m2)Efficient Coefficient(m2)Lnlif 0.10 0.46 0.72 0.46POL 0.007 0.03 0.05 0.03RCO 0.10 0.11 -0.24 0.11COR 0.0001 0.001 0.001 0.001Chi2 (4)statistics49.97(0.000)157.35(0.000)
  6. 6. Sadegh Bafandeh Imandoust and Samane Montazeri / International Journal of EngineeringResearch and Applications (IJERA) ISSN: 2248-9622 www.ijera.comVol. 3, Issue 3, May-Jun 2013, pp.1441-14471446 | P a g ewith fixed effects in which Polity2 positivelyaffects human development index. In addition,LNlif and RCO have positive and significanteffects on the dependent variable, but COR is notsignificant. R2of the model equals to 0.98.Table 4. Estimation Result of BP, F and LR TestsTable 5. Serial Correlation Tests of Residuals resultsV. ConclusionThis study examines the impact ofdemocracy of OPEC member countries on humandevelopment index in 15-year period (1996-2010).The type of model is two way with fixed effects.Positive and significant effect of the mainexplanatory variable (Polity2) on humandevelopment index is confirmed, so the hypothesisof the study cannot be rejected. To ensure morewith the results, serial correlation test of disturbingelements was used that with Baltagi-Wu statistic1.98 confirms a very weak serial correlation amongcross sections. Democracy, development andrespect the human rights and fundamental freedomsare highly interdependent and mutually reinforceeach other. In general, democracy is based onpeople free will in expression and choice ofpolitical, economic, social and cultural system andfull participation in all aspects of life. Polity2variable that in this study is as a representative ofgovernment regime (from absolute monarchy todemocracy) in oil-rich countries determines thelevel of human development in the community. Inother words, the values of freedom, respect thehuman rights and holding safe periodic electionswith universal suffrage are inevitable results ofdemocracy in these countries. By democracy, anatural environment for protection and realizationof human rights which is an integral part of humandevelopment in communities will be provided. AsFriedman (2006) and Wacziarg (2011) prove, thereexists an inverse relationship between crude oilprices, level of democracy and political freedoms inoil-rich countries. So based on mentioned studiesand results of the current paper, it is evident that byincreasing the oil price levels, the degree ofdemocracy in oil-rich countries will decrease andthis will negatively impacts people’ quality of lifeand social welfare.References[1] Acemoglu, Daron, James A. Robinson,(2005), “Economic Origins ofDictatorship and Democracy”, CambridgeUniversity Press.H0a: σµ2=0 H0b: σλ2=0 H0C: σµ2=σλ2=0H0d=σµ2=0σλ2>0H0e=σλ2=0σµ2>0BP 108.23(3.84)22.25(3.84)130.48(5.99)- -F 19.22(1.86)3.73(1.86)39.08(2.06)55.45(2.43)21.75(2.43)LR 26.01(2.70)285.24(2.70)518.46(4.60)- -variable coefficient Z-statistics Std. Err. P>|Z|Lnlif 0.54 9.12 0.05 0.000Pol 0.03 8.80 0.004 0.001RCO 0.10 3.69 0.02 0.006COR 0.001 3.55 0.000 0.005modified Bhargava et alDurbin – Watson = 1.46Baltagi – Wu LBI = 1.98
  7. 7. Sadegh Bafandeh Imandoust and Samane Montazeri / International Journal of EngineeringResearch and Applications (IJERA) ISSN: 2248-9622 www.ijera.comVol. 3, Issue 3, May-Jun 2013, pp.1441-14471447 | P a g e[2] Baltagi, Badi H, (2008), “EconometricAnalysis of Panel Data”, John Wiley &Sons Ltd, 4thedition.[3] Cohen, Carl, (1994), “Democracy”,pecpub – university of Georgia pressAthens.[4] Dahl, Robert, (1971), Polyarchy:Participation and Opposition. New Haven:Yale University Press.[5] Eliasson, Jan, (2006), “Democracy,Conflict and Human security”,International Institute for Democracy andElectoral Assistance, SE-730,34,Stockholm, Sweden.[6] Friedman, T, (2006),“The First Law ofPetropolitics”, Foreign Policy, 154, 28–39.[7] Gerring, John, Thacker, Strom C, Alfaro,Rodrigo, (2012), “Democracy and HumanDevelopment”, Journal of Politics, Vol.74, No. 1, Pp. 1–17.[8] Heo, al., (2012), “The impact ofdemocratization on economic growth”,Korea Observer, 21-45.[9] Joseph A. Schumpeter, (1942),Capitalism, Socialism and Democracy.New York: Harper & Row.[10] Libman,Alexander,2011),“Democracy,Size of Bureaucracyand Economic Growth”, EMPIRE Econ,spring –verlag.[11] Lecturer,Senior, (2008), “Human Rigths,democracy and development”, ResearchJournal of International studies, Issue8:27-41.[12] Leftwich, Adrian, (1996), “Democracyand Development”, polity press, Us.[13] Leite,Carlos, Jens Weidmann, (1999),“Does Mother Nature corrupt? NaturalResources, Corruption and EconomicGrowth”, IMF working paper,Washington, No,99/85.[14] Lipset, M.Seymour, (Przeworski, Adametal, (2000), “Democracy and Development:political Institutions and well- being in theworld”, Cambridge University press, 92-103. 1959), “Some Social Requisites ofDemocracy”, The American politicalscience Review, Vol 53: 69-105.[15] Markus, Bruckner, Ciccone, Antonio,Tesei, Andrea, 2012, “Oil Price Shocks,Income, and Democracy”, Review ofEconomics and Statistics, Vol. 94, No. 2,pages 389- 399[16] Menocal, Alina Rocha. (2007). Analyzingthe Relationship between Democracy andDevelopment: Defining Basic Conceptsand Assessing key Linkages. Wilton ParkConference on Democracy andDevelopment.[17] Sen, A. (1999b) Development as Freedom.Oxford: Oxford University Press. UN-OHRLLS and UNDP (2006) Governancefor the Future: Democracy andDevelopment in Least DevelopedCountries. New York, NY: UnitedNations.Sorensen, George, (1997),“Democracy and Democratization”,Westview press, world politics[18] UlHaq, Mahbob, (1998), “Reflections onhuman development”, Expanded Version,Oxford.[19] UN-HABITAT, (2002), Global Campaignon Urban Governance: Concept Paper,2nd Edition, Nairobi 3[20] ollmer,Sebastian, Martin Ziegler, (2009),“Does Democracy Fulfill its ConstructivePolitical Institutions and HumanDevelopment?”, policy Research workingpaper 4818[21] Wacziarg, Romain, April(2011), “TheFirst Law of Petropolitics”, Economica,The London School of Economics andPolitical Science XX, 1-17 inked[22] United Nations DevelopmentProgramme,(1990), Human DevelopmentReport, New York,[23] Polity IV Project: Home Page,[24][25] Human Development, (2011), ResearchPaper.