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Democracy and economic growth: A survey of arguments and results

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  • Carl Henrik Knutsen

Abstract

This paper surveys the literature on how democracy affects economic growth. The paper first presents descriptive statistics and brief case-descriptions to illustrate how democracy and dictatorship may affect growth. Thereafter, it evaluates five central arguments on democracy and growth, before surveying empirical studies on the relationship. Furthermore, the paper highlights critical methodological challenges, and draws implications for constructing valid models for empirical research on the topic. The review shows that there is still disagreement over whether democracy enhances growth or not. Nevertheless, in the light of more recent studies, using better methodological approaches and more data than previous studies, two trends are recognizable: first, the hypothesis that democracy reduces economic growth is refuted by recent studies; second, the hypothesis that democracy has no effect on growth, although still widespread in the academic community, seems less plausible today than it did 10 or 20 years ago. Several recent studies show that democracy has positive effects on growth, although these effects are ‘indirect’ in the sense that democracy affects growth through, for example, enhancing human capital or strengthening the protection of property rights.

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  • Carl Henrik Knutsen, 2012. "Democracy and economic growth: A survey of arguments and results," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 15(4), pages 393-415, December.
  • Handle: RePEc:sae:intare:v:15:y:2012:i:4:p:393-415
    DOI: 10.1177/2233865912455268
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    2. Klaus Gründler & Tommy Krieger, 2019. "Should We Care (More) About Data Aggregation? Evidence from Democracy Indices," CESifo Working Paper Series 7480, CESifo.
    3. Rui Tang & Shiping Tang, 2018. "Democracy's Unique Advantage in Promoting Economic Growth: Quantitative Evidence for a New Institutional Theory," Kyklos, Wiley Blackwell, vol. 71(4), pages 642-666, November.
    4. Marco Colagrossi & Domenico Rossignoli & Mario A. Maggioni, 2017. "Does democracy cause growth? A meta-analysis perspective," DISEIS - Quaderni del Dipartimento di Economia internazionale, delle istituzioni e dello sviluppo dis1703, Università Cattolica del Sacro Cuore, Dipartimento di Economia internazionale, delle istituzioni e dello sviluppo (DISEIS).

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