The Poverty Effect of Democratization

In this paper we examine the interrelatedness between regime types of democracy and non-democracy and poverty reduction. The liberal international order and democratic principles have been challenged by the populace’s general discontent in recent years, while the reduction of poverty is a central goal of the global development agenda as embodied by the Sustainable Development Goals. Democracies could promote poverty reduction by encouraging redistribution, lifting barriers for poor people, or giving better access to the institutions of society. Democracies might hinder poverty reduction if they are captured by elites or become dysfunctional in general. Our data cover around 140 countries and a period from 1980-2018. We use a mix of methods to address endogeneity concerns. In dynamic panel estimates that control for past influences of poverty, GDP and inequality we find no significant impact of democratization on poverty rates. In more flexible and causal treatment effects estimates we find democratization reduces poverty rates by about 11-14% in the first five years after democratization on a 95% significance level and about 20% 10-14 years after democratization on a 90% significance level. Although we find mixed results, we are still confident that democratic political institutions matter greatly, and societies are better off when the political systems are more inclusive. The fact that our results do not find clear support for this suggest that this is too often not the case, even in democracies.