Study by MIT, Columbia, Boston University and University of Chicago researchers shows that democracy outscores China’s authoritarian capitalism.
New Delhi: A country that becomes a democracy from a non-democracy achieves around 20 per cent higher GDP per capita in the next 25 years than a country which remains a non-democracy, a new study has found.
The study, titled ‘Democracy Does Cause Growth’, is a joint effort of researchers from MIT, Columbia University, Boston University and the University of Chicago.
At a time when China’s rise has made authoritarian capitalism seem like a much better alternative, the study is a shot in the arm for proponents of democracy.
Also read: China’s growing GDP won’t change the fact that the only currency and bank that matter are American
Findings
The study found that for a country that transitions to democracy, GDP per capita increases by around 20 per cent in the next 25 years. The study also observed that a country’s GDP declines if it reverts to a non-democratic structure.
Through this, the study refuted concerns that the positive correlation between democracy and GDP might just be a correlation between any regime change and GDP growth.
The study countered the claim that democracy constrains economic growth for countries with low levels of development. However, it did find evidence that the positive effects of democracy are more pronounced for countries which have higher levels of secondary schooling.
It also speculated that this probably happens because enhanced human capital reduces distributional conflicts in society, thereby making democracy more stable.
Also read: India to regain world’s fastest growing economy tag with 7.3% GDP growth this year: IMF
The study also highlighted the channels through which democracy affects GDP. These include increased investment, encouragement of economic reforms, improvements in education and health care, and reduction of social unrest.
Even though non-democracies can take similar measures, the likelihood of that happening is much lower, said the study.
Methodology
The study took a sample of 175 countries for the period between 1960 to 2010. During this period, it identified 122 democratisations and 71 reversals.
To measure democracy, the researchers developed a consolidated index that captured information from popular datasets like Freedom House (classifies countries as ‘free’, ‘partly free’, and ‘not free’), Polity IV (assigns a continuous score from -10 to +10), and a few others.
The democratic features that counted included free and competitive elections, checks on executive power, and an inclusive political process that permits various groups to be represented politically. To a lesser extent, it also incorporated expansion of civil rights.
The GDP per capita was measured in year-2000 dollars, based upon World Bank Development Indicators.