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Democracy and Economic Growth

Tianfang Song, Paul D. Berger, Hanjoon Kim

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This paper discusses the relationship between regime type and economic development. Since all the developed countries in the world today are all democracies, people may argue that a democracy regime is the essential factor for economic growth. But is this true? Is democracy indeed the cause, or is it actually the consequence of, economic development? This paper utilizes regression analysis to determine the effects of political regime on economic growth. By using OLS random-effects regression and robust regression for panel data, on a data set covering up to 215 countries and regions, and a 55-year period from 1960 to 2014. The vast majority of our analyses did not show a significant democracy variable, thus indicating no statistically-established relationship between democracy and GDP growth. However, the reason behind these results is potentially not straightforward. Countries may become rich under many regime types. The causal effects of social institutions often have cumulative effects, effects that are noticeable only if an institution’s history is brought into consideration. Although there is no consistent relationship between growth and democracy, which belies many people's conventional thinking, our study suggests there is no reason to sacrifice democracy at the altar of development.

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