Democracy and State Capacity: Complements or Substitutes?

Abstract

When it comes to social welfare, we do not have clear understanding of whether it is more important to have democracy or a capable state. Specifically, most studies do not consider the possibility that effects of democracy are conditioned or obscured by differences in the capabilities of states to deliver services effectively. This article contends that better developmental outcomes can result from either democracy or state capacity, but the combination of high levels of both democracy and state capacity is not synergistic. Empirical evidence from a time-series-cross-sectional dataset covering up to 153 countries during the 1965-2010 time period supports the conclusion that these factors partially substitute for each other with respect to improving outcomes in school enrollment and infant mortality. These findings provide a more optimistic answer to the query of Ross (2006) as to whether democracy is good for the poor. Once accounting for state capacity, we find that democracy leads to better development outcomes.

Keywords: democracy, state capacity, development, public services

JEL Classification: H41, I31, H1