Democracy dividend

As long as democracy has existed, it has had its skeptics—from Plato warning of mass rule to contemporary critics claiming that authoritarian regimes can fast-track economic programs.

But a study coauthored by an MIT economist shows that when it comes to growth, democracy significantly increases development: over a 25-year period, countries switching to democratic rule achieved a GDP 20% higher than it would have been had they remained authoritarian states, the researchers report.

“I don’t find it surprising that it should be a big effect, because this is a big event, and nondemocracies—dictatorships—are messed up in many dimensions,” says Daron Acemoglu, the MIT economist behind the study.

Overall, Acemoglu notes, democracies employ broad-based investment, especially in health and human capital, which is lacking in authoritarian states.

“Many reforms that are growth-­enhancing get rid of special favors that nondemocratic regimes have done for their cronies,” he says. “Democracies are much more pro-reform.”

The paper, “Democracy Does Cause Growth,” was published in the Journal of Political Economy. Acemoglu’s coauthors are Suresh Naidu of Columbia University, Pascual Restrepo of Boston University, and James Robinson of the University of Chicago.

Acemoglu and Robinson have studied the interplay of institutions, political systems, and economic growth for nearly two decades. To conduct this particular study, the researchers examined 184 countries in the period from 1960 to 2010. During that time, there were 122 democratizations as well as 71 cases in which countries moved from democracy to a nondemocratic type of government.

The study focuses on countries switching forms of rule. Acemoglu and his colleagues closely tracked the growth trajectories of national economies in those circumstances; they also observed that when countries have democratized within the last 60 years, they have generally done so at times of economic distress. Thus, growth in democracies starts off slowly while they rebound from economic misery.

“Dictatorships collapse when they’re having economic problems,” Acemoglu says. “But now think about what that implies … you have a deep recession just before democratization, and you’re still going to have low GDP per capita for several years thereafter, because you’re trying to recover from this deep dive. So you’re going to see several years of low GDP during democracy.”

Despite the apparently sunny results of the paper, Acemoglu warns that there are no guarantees regarding a country’s political future. Democratic reforms do not help everyone in a society, and some people may prefer to let democracy wither for their own financial or political gain.

“It is possible to see this paper as an optimistic, good-news story [in which democracy] is a win-win,” he says. “My reading is not a good-news story … This paper is making the case that democracy is good for economic growth, but that doesn’t make it easy to sustain.”