How Democracy Affects Growth

An interesting working paper Romain Wacziarg- abstract below;

"This paper introduces a new methodology to examine the empirical relationship between democracy and economic growth. Democratic institutions are assumed to affect growth through a series of channels, in accordance with a procedural view of democracy. We specify and estimate a full system of equations determining growth and the channel variables. Results suggest that democracy fosters growth by improving the accumulation of human capital and, less robustly, by lowering income inequality. On the other hand, democracy hinders growth by reducing the rate of physical capital accumulation and, less robustly, by raising the ratio of government consumption to GDP. Once all of these indirect effects are accounted for, the overall effect of democracy on economic growth is moderately negative. We interpret our results as indicating that democratic institutions are responsive to the demands of the poor by expanding access to education and lowering income inequality, but do so at the expense of physical capital accumulation."

Learned about the author via Economist’s View- be sure to read Wacziarg’s comments on that blog;

“Wacziarg's most recent work relates genetic distance between populations to differences in economic outcomes, such as their income per capita, to better understand the process by which innovations diffuse from one culture to the next. He found that countries whose populations are the most remote genetically from the populations that developed major innovations over the past 200 years are the least well off. While geographical remoteness also plays a role, it is genetic distance that most strongly correlates with how rich or poor a nation will be. The research also suggests that the main way genetic distance hinders the diffusion of development is by creating cultural barriers. The greater the genetic distance, the greater the cultural barriers are to the flow of ideas and technologies.”

Related:
The Diffusion of Development
Is democracy good for the poor?
Democracy Has the Edge When It Comes to Advancing Growth