Democracy and National Economic Performance: The Preference for Stability

appear to arise because democracies ameliorate the effects of social cleavages, another mechanism that might explain democratic stability. When growth and volatility are jointly examined, democracies reveal highly favorable economic results. oes democracy affect national economic performance and, if so, how? No question is more central to the study of political economics. Almost all previous work on democracy and economic performance has focused exclusively on growth rates, with contradictory and confusing results. In this article, we argue that, to reveal the impact of democratic institutions on economic performance, scholars must consider two dimensions of economic performance-growth rate and volatility. We begin with a novel hypothesis: economic policy in democracy is risk avoiding relative to policy in nondemocracies. 1 Because voters are riskaverse, they penalize incumbent governments for economic volatility, and democratic governments respond accordingly. In nondemocracies, we posit that elites are more likely to seek risk that voters would reject. Consequently, autocracies produce systematically more economic volatility than