WORKING PAPER
"Effect of Democracy on Economic Growth"
This paper introduces a new democracy measure to capture the relationship between democracy and economic growth. Using the number of years of continuous democratic regimes as the democracy experience, we find a positive and nonlinear relationship between democracy experience and economic growth. The positive and nonlinear result is consistent with the previously held proposition that democracy enhances growth at the initial level of political freedom and this positive impact might decrease at later stages. However, the positive nonlinear relationship only appears in Asia, Europe, the Pacific, and other developed countries. In contrast, democracy experience has seemingly almost no impact on economic growth in Africa, Latin America, the Caribbean, and the Middle East. We further exploit the regional waves of democracy as an exogenous source of variation in democracy experience. The instrumental-variable estimates suggest that one standard deviation increase in democracy experience causes GDP per capita to rise by 3 percent and democracy has a concave relationship with economic growth.