Democratisation and Growth*

Authors


  • *

     This article is a major revision of an earlier paper titled ‘Aristotle Was Right: Stable Democracy Fosters Growth’. The article was mostly written while the authors were doctoral students at the Economics Department of the London Business School. We are grateful to Antonio Ciccone, Wouter Denhaan, Jean Imbs, Morten Ravn and Richard Portes for detailed comments and support. We also thank Alexis Anagnostopoulos, Francesco Caselli, Simon Commander, Jan Fidrmuc, Denis Gromb, Christos Genakos, Enrico Perotti, Torsten Persson, Andrew Scott and Kostas Tatsiramos for useful comments and Daron Acemoglu for a fruitful discussion. Markus Baltzer offered excellent research assistantship. We also thank seminar participants at the 2004 European Winter Meetings of the Econometric Society, LBS, UCL, UPF, the CEPR/Insead Workshop on Institutions, Policies and Economic Growth, the 2005 Annual Congress of the European Economic Association and the Brunel/CEDI Workshop on Political Institutions and Economic Performance for useful suggestions. Comments from three anonymous referees of this Journal, other referees and Jonathan Temple (the Associate Editor) helped us improve the article. All errors are ours.

Abstract

This article challenges cross-sectional findings that democracy has a negligible effect on growth. We employ a new dataset of political transitions during the Third Wave of Democratisation and examine the within effect of democratisation in countries that abandoned autocracy and consolidated representative institutions. The panel estimates imply that on average democratisations are associated with a 1% increase in annual per capita growth. The dynamic analysis reveals that: while during the transition growth is slow, in the medium and long run it stabilises at a higher level. This evidence favours development theories of democratic rule and Friedrich Hayek (1960)’s idea that the merits of democracy appear in the long run.

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