Democracy Causes Economic Development?


Daron Acemoglu, Suresh Naidu, James A Robinson and Pascual Restrepo in Vox EU:

A belief that democracy is bad for economic growth is common in both academic political economy as well as the popular press. Robert Barro’s seminal research in this area concluded that “More political rights do not have an effect on growth…The first lesson is that democracy is not the key to economic growth” (Barro 1997, pp. 1 and 11). Meanwhile, reacting to the rise of China, New York Times columnist Tom Friedman argues:

“One-party nondemocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century []

In “Democracy Does Cause Growth”, we present evidence from a panel of countries between 1960 and 2010 challenging this view. Our results show a robust and sizable effect of democracy on economic growth. Our central estimates suggest that a country that switches from nondemocracy to democracy achieves about 20% higher GDP per capita in the long run (over roughly the next 30 years). These are large but not implausible effects, and suggest that the global rise in democracy over the past 50 years (of over 30 percentage points) has yielded roughly 6% higher world GDP.

There are several challenges in estimating the impact of democracy on growth. First, existing democracy indices are typically subject to considerable measurement error, leading to spurious changes in the democracy score of a country even though its democratic institutions do not truly change.

More here.