Chapter Three

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Chapter Three:

Rightly or wrongly, economic growth has come to dominate discussions of political performance. If a country’s economy is growing rapidly its government will take full credit for the achievement, and citizens are likely to reward them with another term in office (if the system is democratic). Where an economy lapses into recession, political leaders will be blamed. Academics and policymakers, likewise, look first to a country’s growth performance to judge its overall quality of governance.

Of course, one may doubt the extent to which government policy affects short-term changes in per capita GDP. One may also doubt the extent to which per capita GDP provides an accurate measure of human welfare. With these concerns in mind, the present volume adopts multiple measures of government performance.

That said, it is fair to assume that consistently poor economic performance probably has something to do with a country’s politics, broadly considered. Likewise, a consistently strong growth rate, maintained over a period of years, is a sign that something is going well in the political sphere. Additionally, it seems fair to assume that economic growth – an increase in the total size of the economic pie – is one of the factors that every government rightly aspires to achieve, even if it is not the only objective. With this modest understanding of the place of growth accounting amidst the manifold tasks of governance, we proceed.

The predominant view stemming from academic work over the past two decades is that regime-type has no causal effect on GDP growth, taking all other factors into account. Countries with authoritarian political systems are said to grow as rapidly as democracies, perhaps even faster. To be sure, democracy probably has some positive indirect effects—for example, greater stability or more extensive property rights. The econometric evidence suggests, however, that these positive effects are balanced by negative effects such that the net effect of democracy on growth performance cross-nationally over the past five decades is negative or null.1

A few exceptions to this general finding may be briefly noted. Papaioannou & Siourounis (2004) and Rodrik & Wacziarg (2004) find a relationship between episodes of democratization (if sustained) and growth rates in subsequent years, though refrain from making any claims about the effect of democracy per se on growth performance. Barro (1997) finds that “growth is increasing in democracy at low levels of democracy, but the relation turns negative once a moderate amount of political freedom is attained.” A few recent studies find a positive overall relationship between democracy and growth but the authors do not report extensive robustness tests (e.g., Bhalla 1997; Leblang 1997); perhaps as a result, these studies have not been cited extensively in the literature.

For the most part, case study approaches to the question of democracy and growth confirm the results of cross-national empirics.2 For those focused on individual country trajectories, it is difficult to resist the fact that some of the most impressive growth performances in the postwar era have been registered by authoritarian regimes, including China, Hong Kong, Malaysia, Singapore, South Korea, Taiwan, and Vietnam. Of course, some of these countries are now vibrant democracies; but it is nonetheless true that their postwar growth spurts were attained largely under the auspices of authoritarian rule. To East Asianists, the argument for a democratic growth dividend seems patently absurd. If anything, regionalists argue that there may be an authoritarian growth dividend. The capacity of these regimes maintain social order, to target investments on sunrise industries, to build human capital and infrastructure, to maintain cheap currencies, to maintain limited taxes and balanced budgets, and to suppress or moderate labor union demands is legendary. Of course, different strategies were pursued by each of these countries, and these strategies changed somewhat over time. Even so, the export-led growth model engineered by the Newly Industrialized Countries (NICs) demonstrates broad similarities across the region.

In Latin America, specialists note that phases of strong growth performance often occurred during periods of military rule, as in Brazil and Chile. By the same token, the most persistently democratic countries in the region – e.g., Costa Rica, Columbia, and Uruguay -- were not runaway economic successes. Only in Africa does the relationship between democracy and growth seem strong, although – until recently – there have been so few multi-party democracies that it is difficult to generalize. In short, although most of the rich countries in the world are democratic, the direction of causality is unclear. Case study evidence provides no clear causal story – or, to the extent that it does, it seems to suggest a negative relationship between democracy and growth.

In this chapter, we argue otherwise. On the basis of a series of crossnational regression analyses, democracy is shown to bear a positive relationship to growth when measured as a “stock” concept. We begin with a brief presentation of the anticipated causal mechanisms, and proceed to the empirics. A concluding section reflects on the actual size of the democratic growth effect, as predicted by the empirical model.

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