Can Finance and Credit Enable Economic Growth and Democracy?

Abstract

Can economic growth and democracy be fuelled by finance and credit? This chapter examines mechanisms that have positive effects on democratic transition in the Middle East and North Africa (MENA) region, such as credit growth and the development of capital markets-based credit, based on a bond market and a Sukuk market, its sharia-compliant equivalent. The contribution analyses the general role of credit as a network of legally binding contracts of trust between economic actors, including the state, in any given country. By comparing the role and size of credit in the Organisation for Economic Co-operation and Development (OECD) countries and the MENA region, the author argues that, in general, the growth of credit’s role in MENA countries and, in particular, the development of debt capital markets in the region, strengthen public participation in the economic activity of the region. The spread of contractual obligations requires more transparent and accessible accounting and financial reporting, and a wider network of legally binding obligations. These powerful mechanisms therefore facilitate democratic transitions in MENA countries, even in autocratic regimes.