Safeguarding Economic Growth Amid Democratic Backsliding: The Primacy of Institutions over Innovation

Abstract

This paper investigates how democracy influences economic growth through innovation and institutional quality. Using an augmented Solow growth model and panel-data mediation analysis across 123 countries (2011–2022), we quantify democracy’s impact on GDP per capita. Our results show that institutional quality accounts for 83.3% of democracy’s total effect on economic output, while innovation explains only 16.7%. This study contributes to the literature by distinguishing between institutional and innovation channels in the democracy–growth nexus and provides policy-relevant insights for promoting inclusive economic growth (SDG 8) and building resilient infrastructure and innovation (SDG 9).