Does democracy cause growth?

William Easterly’s new book, The Tyranny of Experts, argues that positive changes in freedoms are the causes of stable long run growth. But as he admitted to me recently on an Al-Jazeera talk show, the book does not present any rigorous evidence to back the claim, partly because thus far research findings have been mixed on the question of how democracy/autocracy impacts economic growth.

Well, Easterly’s book tour just got a boost thanks to Acemoglu et al. who have a new paper (see their blog post on it here) showing that democracy does indeed cause growth (boosting long run per capita income by as much as 20%):

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Reweighted relationship between GDP per capita and democracy (Source: Acemoglu et al., 2014)

Here is the paper’s abstract:

We provide evidence that democracy has a significant and robust positive effect on GDP. Our empirical strategy relies on a dichotomous measure of democracy 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 use a linear model for GDP dynamics estimated using either a standard within estimator or various different Generalized Method of Moments estimators, and show that democratizations increase GDP per capita by about 20% in the long run. These results are confirmed when we use a semi-parametric propensity score matching estimator to control for GDP dynamics. We also obtain similar results using regional waves of democratizations and reversals to instrument for country democracy. Our results suggest that democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public good provision, and reducing social unrest. We find little support for the view that democracy is a constraint on economic growth for less developed economies [emphasis mine].

The full paper is available here.

Daron Acemoglu and James Robinson wrote the classic Economic Origins of Dictatorship and Democracy. The book is thin on empirics and analytical narratives, but is an amazing formal take on the subject of democratization. To balance Economic Origins you should probably also read Barrington Moore’s magnum opus Social Origins of Dictatorship and Democracy.

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