The visible hand in economics

Democracy and growth

Posted on: August 22, 2007

One of my favourite development economists, Daron Acemoglu, has a new paper out. Acemoglu is generally of the view that a country’s level of wealth can be traced back to the country’s institutional development. In a fascinating earlier paper he argued that the institutions set up by European colonists are a major predictor of the current wealth of colonised nations. His new paper proposes that the wealth of a nation is not correlated with the level of democracy in that country, nor is it correlated with regime change towards democracy in the country.

It seems that a trend among Western democracies is to promote democracy as the way forward for developing nations. This has particularly been the case with the US’s recent foreign policy under the Bush/Cheney regime. Does this paper suggest that efforts to ‘nation build’ and push countries towards democracy does little for their economic well-being? Hopefully, it will force nation-builders to be more rigorous about the way that they justify intervention in favour of democracy in developing countries. Suggesting that it’s the one, true path to economic growth will no longer be enough.

7 Responses to "Democracy and growth"

Of course, even if democracy does not offer economic benefits, the social benefits of free speech and liberty cannot be under-valued.

I’m an Acemoglu fan also (talk about a chap with an eye for finding good instruments), but it’s worth noting (and I’m in a hurry now so don’t have time to find the link) that somewhere on Dani Rodrik’s KSG site (Rodrik, of course, was one of Acemoglu’s allies in the great Instns v Geography duel) is a paper which shows (as much as these things can show anything) that, while not experiencing higher growth, on average, democracies have:

1. Better distributional outcomes
2. Fewer big negative economic shocks.

Add to that, Amartya Sen’s stuff on famines not occurring in democratic nations with a free press and Matt’s comment above and I know what sort of political system I’d sooner live in.

I just wouldn’t want people as inept and evil as the Bushies to bomb me there.

oh – and another thing – I don’t think growth was ever a putative justification for the invasion of Iraq; rather democracy was seen as a counter to the rise of Islamism.

I think it’s fairly safe to say that that claim has been fairly disproven by subsequent events .

Thanks for the interesting comment: I haven’t seen that paper so I’ll go and have a look around for it.

In my defence, I wasn’t trying to promote non-democratic government with this post. I do think that a lot of Western governments promote democracy as the way forward for developing countries. They either point to their own economic wealth as a justification, or they offer vague rhetoric about freedom and liberty. I don’t think that’s enough of a reason to pursue a policy of pushing countries to switch political systems. I do believe that democracy is the best functioning political system that we have at the moment, I’d just like to see its leaders be a bit more honest about justifying their overseas interventions. We can all dream, can’t we???

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