Is Democracy Good for Growth? Institutional Quality Matters

Abstract: Is democracy good or bad for growth? This paper shows that democracy can be quite good for growth if it is a strong democracy, otherwise the effect on growth is not much better than that of autocracy. In the baseline results, the annual growth rates of GDP per capita are increased by about 1.2% on average after democratization in countries where democracy functions well enough. The results are robust to various change of data sets, control variables, or criteria that categorize a democracy into strong or weak. Strong democracies have better economic development in the beginning, and their overall institutional quality is also better.