The perfect variable
I am currently reading the paper “Democracy, foreign direct investment and natural resources” by Asiedu,E. & Lien, D. (2011). Click here to have access to it.
Among the many things that caught my attention so far is the use of three democracy variables, from different sources (i.e. Freedom House, Polity IV and the International Country Risk Guide) to estimate their equation benchmarks, thus evaluating the impact of variable estimation on equation estimation and increasing credibility of their results.
Economics is far from being an exact science. In a certain way, this is what attracts me the most about it. It is not about calculating and getting a result. We study human beings, and human beings are way more complex than any squared root of a negative number. Putting human behavior into numbers is much more of an art than science. Why do we keep trying? Because numbers help as understand patterns and trends. Once we are able to identify how human beings tend to react over a certain situation, we can operate incentive systems towards a goal, putting society onto a more prosperous path >. Is less about getting it right and more about moving towards understanding human nature, behavior and decision making.
Can we define democracy? I learned on my fourth year of BA Economics that democracy is the sovereignty of people’s wishes. Easy and beautiful to put on paper, but how can one measure the greatness of democracy within a country? More over, how do you compare the level of democracy among countries with completely different backgrounds, history and cultures? How do you determine if the wishes of a nation are being more or less sovereign than others? This is a nearly impossible task, and I am glad there are people, economists thinking about that and trying to come up with variables that are far from being perfect, but that will somehow help us understand better the impact of democracy within our economy, our society, our lives.