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This article examines how the rule of law and democratic accountability have affected Hong Kong’s Gross Domestic Product (GDP) growth rate in the past 20 yr. We find that democratic accountability has deteriorated substantially since the changeover of sovereignty in 1997, while the rule of law has remained strong and stable. Empirical results from autoregressive distributed lag bounds tests show a positive long-run relationship between growth and democratic accountability, and Granger causality tests reveal that democratic accountability causes the growth rate of GDP in the short run. These conclusions are robust to control for the effects of investment and the Asian financial crisis in 1997. ( JEL O18, O49, P17) [ABSTRACT FROM AUTHOR]

Discusses the role of financial development in economic growth. Empirical theory; Time-series and cross-country evidence; Correlation coefficients between private credit to gross domestic product (GDP) and GDP growth; Role played by the government and trade in financial development and economic growth.