“How democracy and dictatorship affect economic growth: Evidence from James Monroe and the Quing Dynasty to George W. Bush and the Communist Party.” Oslo seminar in positive political science BI, Oslo, 12/ Carl Henrik Knutsen

Research question Is there an effect from democracy on economic growth? Average effect The categorization of political regimes. Democracy- dictatorship continuum and conceptual uni- dimensionality A bit crude, but nevertheless an interesting and much debated question – Academic debates – Policy debates

The important conclusions There is a likely positive effect on economic growth from democracy. – The overall evaluation of theoretical arguments pointing to democracy’s growth advantage – Different econometric analyses find a relatively robust effect on a very extensive data sample. Estimated 1 percentage point extra annual growth in GDP per capita from “full democratization”. – No support for Barro’s inverse U-curve. The more democracy, the better for growth

Structure paper Introduction with short review of answers/positions taken on the research question Theoretical arguments – 4 Przeworski and Limongi arguments + 1 extra – Multiple mechanisms and no single, dominating coherent theoretical framework – Scorecard Data Empirical analysis, – OLS with PCSE – FE and RE (answer to: what if unobserved country-specific effects?) – 2SLS (answer to: what if substantial endogeneity bias?) – Matching (non-linear effects) Short empirical section on Barro’s claim that semi-democracy is better for growth Conclusion

The (very!) general framework Aspect of political regime related to degree of democracy (ch&bal, free speech, free and fair elections…) Policy Change in inputs (physical and human capital, labor), efficiency, technological change Economic growth

Summary theoretical scorecard ArgumentPrzeworski and Limongi's conclusionsMy conclusions 1) Democracy and property rightsEither wayFor democracy 2) Democracy and investmentAgainst democracy Either way (for democracy when adding human capital) 3) Dictatorship and insulation against particularistic pressureAgainst democracyAgainst democracy, but with qualifications 4) Autonomous rulers are predatoryFor democracy 5) Democracy and technological change-For democracy

Data Maddison’s data – Historical data on GDP and population 1945 or 1960 as “year 0” in quantitative analysis – Draws on different sources, uncertainty – Includes many countries often left out of other databases: e.g. North Korea. Reduces systematic selection  The effect from democracy has been underestimated earlier Polity, from First year used in analysis is 1820

OLS with PCSE GR i,t = β 0 +β 1 polity i,t-2 + β 2 ln(dur+1) i,t-2 + β 3 ln(gdp/cap) i,t-2 + β 4 ln(pop) i,t-2 + Σβ j relig i + Σβ k reg i + Σβ l period l Four models: small (n=8933) and interpolated samples (n=9438), five period vs decade time controls All significant at 1%-level Estimated polity-coefficients between and RE: relatively similar to OLS with PCSE FE: significant at 5%-level when five-period contrls, insignificant when decade-dummies

2SLS (G2SLS: random effects IV) Instrument Dem Growth Huntington’s waves and exogenous variation in regime type (global trends and contagion from neighbours exogenous to national politics) 2SLS as consistent, but relatively inefficient Model with decade dummies: sig at 10%-level with interpolated sample, t=1.51 for small sample However, larger point estimates than OLS with PCSE, RE and FE  Hausman tests find no significant difference with RE model  go with the more efficient RE? Extra instrument to strengthen efficiency (absolute latitude from Hall and Jones)  Both models sig at 5%-level

Matching SamplePolity cut-offNumber of matches Average treatment effectT-value Number of observations Small ***8933 Small ***8933 Small ***8933 Small ***8933 Small ***8933 Small **8933 Small ***8933 Small ***8933 Interpolated ***9438 Interpolated *** 9438 Interpolated *** 9438 Interpolated *** 9438 Interpolated *** 9438 Interpolated *** 9438 Interpolated *** 9438 Interpolated *** 9438

Barro’s inverse U?

Conclusion Different methods, based on different assumptions, indicate a positive effect from democracy on growth when using the largest sample of data available. No democracy-growth trade-off, rather to the contrary.