Working Paper: NBER ID: w20004
Authors: Daron Acemoglu; Suresh Naidu; Pascual Restrepo; James A. Robinson
Abstract: We provide evidence that democracy has a significant and robust positive effect on GDP. Our empirical strategy relies on a dichotomous measure of democracy coded from several sources to reduce measurement error and controls for country fixed effects and the rich dynamics of GDP, which otherwise confound the effect of democracy on economic growth. Our baseline results use a linear model for GDP dynamics estimated using either a standard within estimator or various different Generalized Method of Moments estimators, and show that democratizations increase GDP per capita by about 20% in the long run. These results are confirmed when we use a semiparametric propensity score matching estimator to control for GDP dynamics. We also obtain similar results using regional waves of democratizations and reversals to instrument for country democracy. Our results suggest that democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public good provision, and reducing social unrest. We find little support for the view that democracy is a constraint on economic growth for less developed economies.
Keywords: Democracy; Economic Growth; GDP; Investment; Education
JEL Codes: O10; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Democracy (D72) | Investment (G31) |
| Democracy (D72) | Schooling Levels (I21) |
| Democracy (D72) | Economic Reforms (E69) |
| Democracy (D72) | Improved Public Goods Provision (H49) |
| Democracy (D72) | Reduced Social Unrest (D74) |
| Nondemocracy (D72) | Democracy (D72) |
| Democracy (D72) | GDP (E20) |