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Democracy and Economic Growth: A meta-analysis

by Hristos Doucouliagos and Mehmet Ulubasoglu. Reading for week of March 21, 2006.

Despite a sizeable theoretical and empirical literature, no firm conclusions have been drawn regarding the impact of political democracy on economic growth. This paper challenges the consensus of an inconclusive relationship with a meta-analytic review and a quantitative assessment of the democracy-growth literature. We apply meta-regression analysis to the population of 470 estimates derived from 81 papers on the democracy-growth association. In addition to raditional meta-analysis estimators, we use also the bootstrap and clustered data analysis, as well as Fixed and Random Effects meta-regression models. Our meta-analysis derives several robust conclusions on the relationship. First, once all the available evidence is considered, there is, on average, no evidence of democracy being detrimental to growth. Taking all the available published evidence together, we conclude that democracy has no direct effect on economic growth. On the other hand, it has robust and significant indirect effects on growth. The results are consistent with democracies being associated with higher human capital accumulation, lower inflation, lower political instability and higher economic freedom. Additionally, there is some evidence that democracies are associated with larger governments and more restrictions to international trade. Our results also point to the existence of country specific and region-specific democracy-growth effects. In particular the reported evidence shows that growth effect of democracy is higher in Latin America and lower in Asia. We conclude that whatever other effects democracy may have on society, its net effect on the economy is not detrimental.

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