Abstract
There is no consensus among academics or policy makers on whether or how democracy affects economic growth. This paper provides solid evidence for the hypothesis that democracy enhances growth. The paper reviews and evaluates some of the most important theoretical arguments on why democracy and dictatorship may affect growth. Particularly, this paper investigates how regime type affects technological change, arguably the most important determinant of long term economic growth. One hypothesis is that democracies have higher technology-induced economic growth than dictatorships. This hypothesis is deduced from a formal model where dictators value both personal consumption and staying in office. In the model, dictators can restrict civil liberties and diffusion of information, which reduces economic growth, but increases dictators’ probability of surviving in office. Thereafter, the paper presents the most extensive statistical study conducted on the effect from democracy on technological change and on economic growth, drawing on panel data with time series going back to the nineteenth century for some countries. The analysis finds that democracy most likely produces higher technology-induced economic growth. There is also relatively robust evidence for the hypothesis that democracy enhances economic growth more in general.