The debate over whether democracy causes economic prosperity and growth dates back millennia. Recent empirical results suggest that democratisation has a sizable positive effect on economic growth, but endogeneity and reverse causality may be driving these results. This column uses new data from surveys of democracy experts to solve the endogeneity puzzle. The positive association between democracy and economic growth could reflect the fact that democracy causes more economic growth (the argument pushed by recent economic studies) or that economic turmoil causes the emergence of democratic rule (the argument espoused by extensive political science research) or, to some extent, both
The conclusion that Pozuelo, Slipowitz and Vuletin reach is that the form of government has little bearing on economic prosperity.
In summary, we show that a further examination into genuine endogeneity considerations indicates that, contrary to recent findings, democracy unfortunately does not seem to be the key to unlocking economic growth.
Of course, this cautionary reality applies in reverse, too. While democracy does not seem to be the key to unlocking economic growth, it would be a mistake to conclude that an autocratic or dictatorial regime would fare any better. In other words, the form of government has little bearing on economic prosperity.