Democratisation and Growth

This article challenges cross-sectional findings that democracy has a negligible effect on growth. We employ a new dataset of political transitions during the Third Wave of Democratisation and examine the within effect of democratisation in countries that abandoned autocracy and consolidated representative institutions. The panel estimates imply that on average democratisations are associated with a 1% increase in annual "per capita" growth. The dynamic analysis reveals that: while during the transition growth is slow, in the medium and long run it stabilises at a higher level. This evidence favours development theories of democratic rule and Friedrich Hayek (1960) 's idea that the merits of democracy appear in the long run. Copyright © The Author(s). Journal compilation © Royal Economic Society 2008.