Democracy Does Cause Growth

We provide evidence that democracy has a significant and robust positive effect on GDP per capita. Our empirical strategy controls for country fixed effects and the rich dynamics of GDP, which otherwise confound the effect of democracy on economic growth. To reduce measurement error, we introduce a new dichotomous measure of democracy that consolidates the information from several sources. Our baseline results use a dynamic panel model for GDP, and show that democratizations increase GDP per capita by about 20% in the long run. We find similar effects of democratizations on annual GDP when we control for the estimated propensity of a country to democratize based on past GDP dynamics. We obtain comparable estimates when we instrument democracy using regional waves of democratizations and reversals. Our results suggest that democracy increases GDP by encouraging investment, increasing schooling, inducing economic reforms, improving the provision of public goods, and reducing social unrest. We find little support for the view that democracy is a constraint on economic growth for less developed economies.