Democracy Does Cause Growth

MIT Department of Economics Working Paper No. 14-09

66 Pages Posted: 21 Mar 2014  

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Suresh Naidu

Columbia University

Pascual Restrepo

Boston University - Department of Economics

James A. Robinson

Harvard University - Department of Government; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 17, 2014

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 semiparametric 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.

Keywords: democracy, growth, political development

JEL Classification: P16, O10

Suggested Citation

Acemoglu, Daron and Naidu, Suresh and Restrepo, Pascual and Robinson, James A., Democracy Does Cause Growth (March 17, 2014). MIT Department of Economics Working Paper No. 14-09. Available at SSRN: https://ssrn.com/abstract=2411791 or http://dx.doi.org/10.2139/ssrn.2411791

Daron Acemoglu (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Suresh Naidu

Columbia University ( email )

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Pascual Restrepo

Boston University - Department of Economics ( email )

James A. Robinson

Harvard University - Department of Government ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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National Bureau of Economic Research (NBER) ( email )

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