Democracy Versus Dictatorship: the Political Determinants of Growth Episodes

Abstract: Whether democracy causes economic growth has been a matter of theoretical and empirical debate. We argue that looking at the average effect of democracy on long run growth ignores the heterogeneity of growth experiences among authoritarian regimes relative to democratic regimes. Furthermore, the emphasis on long-run growth is not compatible with the stylised facts of economic growth in developing countries, which is characterized by frequent shifts in growth between decelerations and accelerations. We examine the political determinants of the magnitude of growth in accelerations and deceleration episodes for 125 countries for 1950-2010. We find that the effect of the political regime on growth is asymmetric across accelerations and decelerations and that democracies do not necessarily outperform autocracies in a growth acceleration episode, though they are likely to prevent large growth collapses. We also highlight the importance of the type of autocracy in understanding the effects of regime type on growth.