Robert J. Barro's Democracy & Growth
Thanks to Rok Spruk for providing this link to Robert J. Barro's paper on Democracy and Growth:
Growth and democracy (subjective indexes of political freedom) are analyzed for a panel of about 100 countries from 1960 to 1990. The favorable effects on growth include maintenance of the rule of law, free markets, small government consumption, and high human capital. Once these kinds of variables and the initial level of real per-capita GDP are held constant, the overall effect of democracy on growth is weakly negative. There is a suggestion of a nonlinear relationship in which democracy enhances growth at low levels of political freedom but depresses growth when a moderate level of freedom has already been attained. Improvements in the standard of living - measured by GDP, life expectancy, and education - substantially raise the probability that political freedoms will grow. These results allow for predictions about which countries will become more or less democratic in the future.NBER normally sells access to the full paper for $5, but they will also make it available for free if, among other options, you have an email address in a developing country (Slovenia and St. Kitts & Nevis included).
Nevertheless, a common view - supported by many case studies - is that prosperity tends to inspire democracy. The overall cross-country evidence considered in this study supports this view; specifically, an increase in the standard of living tends to generate a gradual rise in democracy. In contrast, democracies that arise without prior economic development - sometimes because they are imposed from the outside - tend not to last.This foretells the sad performance of democracy as externally imposed in Afghanistan and Iraq in recent years. It is prosperity that breeds democracy, and not the other way around! In fact - according to the paper's findings - the impact of democracy on prosperity is weakly negative...