Introduction

Does democracy in the political realm foster, hinder, or does it have no effect on economic growth? We answer this question on the basis of a statistical analysis of 139 countries between 1950 or the year of independence or the first year when the economic data are available, and 1990 or the last year for which the data are available.

The chapter is short on theory and long on methods: the methodological issues entailed are complex, involving economics, econometrics, and a fair dose of metaphysics. The first section is a brief review of arguments about the effect of political regimes on economic growth. The second section is devoted to the central methodological issue. The results are presented in the third section, followed by Conclusions. Mainly technical, but also some substantive, issues are relegated to appendices.

Democracy, dictatorship, and economic growth

We summarize theoretical arguments only briefly, since we recently reviewed them in some detail (Przeworski and Limongi 1993; see also Bhalla [in this volume]). In a nutshell, arguments in favor of dictatorship add up to the claim that they are more effective at mobilizing resources for investment; arguments in favor of democracy maintain that they allocate better such resources.

The principal argument that there exists a trade-off between democracy and development was developed in the late 1950s and early 1960s, perhaps first by Galenson (1959) and de Schweinitz (1959), and it was made influential by Huntington (1968). This argument runs as follows. People whose livelihood hovers around subsistence cannot afford to make intertemporal trade offs. They need to consume now. Democracy makes this pressure toward immediate consumption effective.