Empirical Linkages Between Democracy and Economic Growth

Abstract

Using cross-sectional and pooled data for up to 125 countries over the period from 1960 to 1985, this article evaluates the two-way linkages between democracy and economic growth. The effects of income on democracy are found to be robust and positive. The effects of several measures of democracy and personal freedoms on growth are assessed in a comparative growth framework in which growth of GDP per adult depends negatively on initial income levels, as implied by the convergence hypothesis, and positively on rates of investment in physical and human capital. Adjusting for the simultaneous determination of income and democracy makes the estimated partial effect of democracy on subsequent economic growth negative but insignificant. This nonsignificant negative effect is in any case counterbalanced by the positive indirect effect that democracy exerts on growth via education and investment. The general result of the growth analysis is that it is still not possible to identify any systematic net effects of democracy on subsequent economic growth.