Democracy does cause growth

We provide evidence that democracy has a significant and robust positive effect on GDP per capita. Our empirical strategy relies on a dichotomous measure of democracy coded from several sources to reduce measurement error and controls for country fixed effects and the rich dynamics of GDP, which otherwise confound the effect of democracy on economic growth. Our baseline results use a dynamic panel model for GDP, and show that democratizations increase GDP per capita by about 20 % in the long run. We find similar results when we estimate the effect of democratizations on GDP year-by-year, controlling for the GDP dynamics linearly or using the estimated propensity to democratize based on past GDP dynamics. We obtain comparable estimates using regional waves of democratizations and reversals to instrument for democracy. Our results suggest that democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public good provision, and reducing social unrest. We find little support for the view that democracy is a constraint on economic growth for less developed economies