Question

Hong Kong Community College  CCN 3121 Issues in Hong Kong Society


Some people argue that economic development is more important to political development in the long run. Do you agree?

Guideline:

You should write no more than 2,000 words in English or 3,000 words in Chinese (excluding references/bibliography/footnotes). This assignment accounts for 20% of your final grade. See the following table for the assessment criteria:

1. Understanding of the political/social/cultural/economic context of Hong Kong

2. Analytical ability

3. Structure and organization (proper referencing is required)

Answer 1

It is widely known that institutions matter to long run economic growth. But how do they matter?Of late the belief that democracy has positive impact on GDP growth has been gaining momentum through sum empirical and theoretical studies.Does economic development cause countries to become more democratic? A vast literature says Yes. Economic development does lead to greater political rights and freedom.

Democracies employ abroad based investment, especially in health and human capital, which is lacking in authoritarian states. Democracies tend to tax and invest more than authoritarian regimes particularly  in medical care and education. And thus have a robust education and medical system which are crucial for improving the human capital and welfare in the long run. Many reforms that are growth enhancing get rid of special favors that nondemocratic regimes have done for their cronies. Democracies are much more pro reform.

Economic growth under extractive political institutions will run of of steam and is not sustainable. Once the economy reaches a certain stage of growth, development, prosperity extractive political institutions will not supplement growth in the economic institutions, Citizens as they accumulate wealth, knowledge their aspirations for inclusive political institutions, broader freedom and liberty will increase.

Economic development freedom is proportional to many freedoms like political freedom, social freedom. Entrepreneurship boosts economic growth but for entrepreneurship to flourish it is necessary to have political freedom which can be achieved through economic freedom and development. In the long term the incentives for people to innovate, improve their skills, productivity are encompassed in greater political freedom and inclusivity. If the the political institutes are exclusive and extractive people will have no incentive and motivation in the long run to innovate, improve their skills, knowledge, productivity, once growth reaches a certain level it lead to economic stagnation or deterioration under extractive and exclusive political system. But if political institutes are inclusive and if people enjoy meaningful political rights and representations they would have the assurance through the established inclusive political system that their rights and interests is safeguarded and hence they would have the incentive to improve their contributions to the economy thus enabling sustainable long term economic growth. Inclusive political institutions also ensure that wealth is not concentrated in the hands of few they ensure equitable distribution of resources and opportunities  and the masses welfare is taken into consideration and prioritized and promoted. Inclusive political institutions have an incentive to listen to the voices of the masses, to ensure their well being, safeguard their interest as it would be the votes of these masses that would enable them to win the elections. Under income inequality will surge and widen as the economy grows and no one will be held accountable or responsible under the absence of inclusive political institutes and it is imperative to ensure the the benefits of economic development and growth is enjoyed by all and not just the narrow elite, it is also vital to ensure that there is equitable access to opportunities and resources, inclusive political institutes enable this and in its absence equitable and shared benefits and welfare cannot be achieved in the long run. When an economy grows it is imperative to ensure that the growth does not stagnate and the economy continues in that growth trajectory. Under exclusive political Institutions once the economy reaches  a certain level of growth the economy begins to stagnate or deteriorate this is mainly because individuals will have no incentive to innovate, improve their productivity, skills. Inclusive political institutions do not let such a situation arise, they invest in improving the welfare, quality of human capital and individuals are aware of the fact that their rights and interest will be protected and that they enjoy political freedom and representation and hence they have the incentive and motivation to improve their productivity and skills, innovate and increase their contribution to the economy as it will enable them to increase their prosperity. Thus for a country to enjoy continued, shared, inclusive  and sustainable economic growth it is indispensable to have a inclusive political institutions.

Countries which have democratized within the last 60 years have generally done so at times of economic distress. Dictatorships collapse when they are having economic problems. At certain times the country's income matters a lot for its political evolution: in other periods , income's influence is muted.

Political Institutions fundamentally matter only for incipient democracies, and not for consolidated democracies. Political institutions demonstrate that consolidated democracies and political institutions are substitutes for determining economic growth. Consolidated democracies have already internalized the effect of political institutions. The consolidation of democracies therefore downplays the importance of political institutions in elation to economic performance: once democracy is consolidated, and favorable institutional conditions for investments are provided, the importance of the political variable loses intensity. The adoption of a democratic regime positively affects economic growth once it is controlled by the variables that measure political institutions.

As expected in rich countries the affects of political institutions on growth are small or negligible as opposed to poor countries. On the other hand political institutions are extremely important for economic growth in low -income countries. Specifically, the longer the same elite is in power, the more fragmented the party system is: and more party centered the electoral system is, the smaller economic growth will be for low-income countries. On the other hand, the greater the district magnitude and the more pluralities the electoral system is, political polarization and federalism help poor countries to achieve better economic performance.

In democratic regimes , the longer political power is held by a particular political leader, the greater economic growth will be however when dealing with autocracies such effect is reversed. Given that political institutions variables often suggest a certain degree of political rights, the results suggest that even autocratic regimes can have a satisfactory economic performance as long as some political rights are granted to society. Although the adoption of a democratic regime is not sufficient to achieve greater economic growth, democracy with good institution might be.