Democratization and Growth

This paper 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 Democratization and examine the within effect of democratization in countries that abandoned autocracy and consolidated representative institutions. The panel estimates imply that on average democratizations are associated with a one half 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 stabilizes 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..