Revisiting the causal effect of democracy on long-run development

Blog post by Markus Eberhardt: “In a recent paper, Acemoglu et al. (2019), henceforth “ANRR”, demonstrated a significant and large causal effect of democracy on long-run growth. By adopting a simple binary indicator for democracy, and accounting for the dynamics of development, these authors found that a shift to democracy leads to a 20% higher level of development in the long run.1

The findings are remarkable in three ways: 

  1. Previous research often emphasised that a simple binary measure for democracy was perhaps “too blunt a concept” (Persson and Tabellini 2006) to provide robust empirical evidence.
  2.  Positive effects of democracy on growth were typically only a “short-run boost” (Rodrik and Wacziarg 2005). 
  3. The empirical findings are robust across a host of empirical estimators with different assumptions about the data generating process, including one adopting a novel instrumentation strategy (regional waves of democratisation).

ANRR’s findings are important because, as they highlight in a column on Vox, there is “a belief that democracy is bad for economic growth is common in both academic political economy as well as the popular press.” For example, Posner (2010) wrote that “[d]ictatorship will often be optimal for very poor countries”. 

The simplicity of ANRR’s empirical setup, the large sample of countries, the long time horizon (1960 to 2010), and the robust positive – and remarkably stable – results across the many empirical methods they employ send a very powerful message against such doubts that democracy does cause growth.

I agree with their conclusion, but with qualifications. …(More)”.