Study finds there is no better economic strategy for growing your country than good old democracy | Democracy, elections and voting at Democracy Chronicles

August 27, 2015
TERRY JONES
Democracy Is Top Economic Growth Strategy, Says Study by INVESTOR’S BUSINESS DAILY

Do nations prosper by becoming democracies? A recent National Bureau of Economic Research study by MIT economist Daron Acemoglu and University of Chicago economist James A. Robinson suggest the answer is yes.

It’s long been a truism that democracy brings benefits and flexibility to an economy that help boost growth. But some theoretical work “suggests that not all the mechanisms unleashed by moving political institutions from autocratic to democratic are positive for economic growth.” The economists built a model that controlled for possible unexpected influences — such as recessions and negative economic shocks, which often take place before a nation turns democratic. It’s tricky.

After doing the necessary number fiddling, what they found was pretty remarkable: “Our central estimates suggest that a country that switches from autocracy to democracy achieves about 20% higher GDP per capita over roughly 30 years.” That’s a huge difference.

They looked at a number of other variables and found that democracy has beneficial effects on such things as tax-to-GDP ratio and primary school enrollment rates.

Everyone knows that following the collapse of the Berlin Wall, nations around the world moved toward democracy and economic growth soared. Unfortunately, in recent years, a number of countries have slid back into their autocratic ways.

Perhaps the takeaway here is those nations that have gone back on democratization — Russia, Venezuela, China and Argentina immediately come to mind — would do well to return to the fold. It’s no guarantee, but democratization seems to be the best economic policy a nation can follow.