Reanalysing the link between democracy and economic development

Abstract

This article systematically reanalyses the long-run effects of democracy on economic prosperity by using new Varieties of Democracy and gross domestic product (GDP) per capita data for a panel data set between 1789 and 2019. Adopting (a) dynamic panel strategies controlling for country and year-fixed effects and (b) newly introduced matching methods for time-series cross-sectional data, the findings clearly indicate that democracy substantively increases economic development. My reanalysis of Acemoglu et al.'s seminal study indicates that in the long-run democracy has a positive average effect on GDP per capita of around 17% for the period between 1789 and 2019. Overall, the findings strengthen the existing literature by using a large sample of countries in the entire 19th and 20th centuries and measuring democracy and liberalization episodes in a more nuanced and rigorous fashion.