A belief that democracy is bad for economic growth is common in both academic political economy as well as the popular press. Robert Barro’s seminal research in this area concluded that “more political rights do not have an effect on growth … The first lesson is that democracy is not the key to economic growth” (Barro 1997, pp. 1 and 11). Meanwhile, reacting to the rise of China, New York Times columnist Tom Friedman argues:

“One-party nondemocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century […]”

In “Democracy Does Cause Growth”, we present evidence from a panel of countries between 1960 and 2010 challenging this view. Our results show a robust and sizeable effect of democracy on economic growth. Our central estimates suggest that a country that switches from nondemocracy to democracy achieves about 20% higher GDP per capita in the long run (over roughly the next 30 years). These are large but not implausible effects, and suggest that the global rise in democracy over the past 50 years (of over 30 percentage points) has yielded roughly 6% higher world GDP.

That's all 🙂

Democracy and Economic Development
In recent decades, the link between democracy and economic development has been a significant area of study. Democratic systems often create an environment conducive to economic growth.
Key Factors Contributing to Economic Development in Democracies:
- Accountability and Transparency
Democratic governments are typically more accountable to their citizens, leading to better governance and reduced corruption. For example, in countries like Sweden and Canada, transparency in government operations fosters business trust and investment.
- Protection of Property Rights
Democracies tend to protect property rights more effectively, encouraging entrepreneurship. In India, post-liberalization reforms have led to robust economic growth, partly due to its democratic framework that supports individual rights.
- Economic Policies Driven by Public Needs
Democratic governments often implement policies that reflect the needs of their citizens. For instance, in Germany, social policies and economic stability have gone hand in hand, leading to sustained growth.
Comparison with Non-Democratic Countries:
- Limited Freedom and Innovation
Non-democratic regimes, like North Korea, often stifle innovation and limit personal freedoms, resulting in economic stagnation. The absence of a free market and entrepreneurial spirit hampers growth.
- Corruption and Mismanagement
Countries such as Venezuela illustrate how authoritarian regimes can lead to economic mismanagement and corruption, resulting in economic collapse despite having abundant resources.
- Lack of Public Participation
In non-democratic settings, citizens have limited influence over economic policies, which can lead to disenfranchisement and social unrest. The economic decline in Zimbabwe under Robert Mugabe’s rule exemplifies the consequences of poor governance.
Conclusion:
In summary, democracies generally facilitate better economic development through accountability, protection of rights, and responsive governance, while non-democratic regimes often struggle with corruption and inefficiency. The contrasting examples illustrate that democracy can be a powerful engine for sustainable economic growth.