Democracy Does Cause Growth
Daron Acemoglu
MIT
Suresh Naidu
Columbia
Pascual Restrepo
MIT
James A. Robinson
Harvard
December, 2015.
Abstract
We provide evidence that democracy has a significant and robust positive effect on GDP per
capita. Our empirical strategy controls for country fixed effects and the rich dynamics of GDP,
which otherwise confound the effect of democracy on economic growth. Moreover, to reduce measurement error, we introduce a new dichotomous measure of democracy that consolidates the information from several sources. Our baseline results use a dynamic panel model for GDP, and show that democratizations increase GDP per capita by about 20% in the long run. We find similar results when we estimate the effect of democratizations on annual GDP, controlling for the GDP dynamics linearly or using the estimated propensity to democratize based on past GDP dynamics.We obtain comparable estimates when we instrument democracy using regional waves of democratizations and reversals. Our results suggest that democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public goods provision, and reducing social unrest. We find little support for the view that democracy is a constraint on economic growth for less developed economies.
Keywords: Democracy, Growth, Political Development.
JEL Classification: P16, O10.