Democracy Does Cause Growth | 2015
Joint with Daron Acemoglu, James Robinson and Suresh Naidu
Forthcoming in the Journal of Political Economy
We provide evidence that democracy has a significant and robust positive effect on GDP per capita. In our empirical estimates, we use a dichotomous measure of democracy that is coded from several sources to reduce measurement error, and controls for country fixed effects and the rich dynamics of GDP, which otherwise confound the effect of democracy on economic growth. Our baseline results employ a dynamic panel model for GDP and demonstrate that in the long run democratizations increase GDP per capita by about 20%. We obtain similar results when we control for the GDP dynamics linearly or by the propensity to democratize on the basis of past GDP dynamics and estimate the effect of democratizations on GDP year-by-year. We obtain comparable estimates using regional waves of democratizations to instrument for democracy. Our results suggest that democracy increases future GDP because it encourages investment, increases schooling, induces economic reforms, improves public good provision, and reduces social unrest. We find little support for the view that in less developed economies democracy constrains economic growth.