Many analysts view democracy as a neutral or negative factor for growth. This column discusses new evidence showing that democracy has a robust and sizable pro-growth effect. The central estimates suggest that a country that switches from non-democracy to democracy achieves about 20% higher GDP per capita over the subsequent three decades....
So why does democracy increase growth? Our strategy is not well suited to disentangling particular mechanisms, but we attempt to disaggregate both dimensions of democracy and proximate determinants of growth. When we disentangle what components of democracy matter the most for growth, we find that civil liberties are what seem to be the most important. We also find positive effects of democracy on economic reforms, private investment, the size and capacity of government, and a reduction in social conflict. Clearly all of these are channels by which democracy can increase economic growth, and a great deal of further research is needed. Together with our previous work showing that democracy had no effect on inequality, these results suggest the interaction between democratic institutions and the level and distribution of income is more complex than the previous literature suggests.
VOX
Democracy causes economic development?
Daron Acemoglu, Suresh Naidu, James A Robinson, Pascual Restrepo, 19 May 2014
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