Democratization and Economic Prosperity

Abstract

What explains cross-national variation in economic prosperity? One line of ongoing research explores whether political institutions associated with democracy are important determinants. Devising accurate tests of this relationship is non-trivial; while the timing of democratic transitions is arguably stochastic, the process by which countries adopt democratic political practices may be endogenous to economic outcomes. We identify the e ect of democratization by comparing the economic output of democratized units with the output of synthetic counterfactuals of these same units under a condition of no democratic transition. We focus on reforms that took place in Africa in the 1990s using balanced panel data for the period 1975-2008. Our empirical approach yields an unbiased estimate (in expectation) of the e ffect of democratization for each individual treated unit under relatively modest assumptions. We find that, in the African context, formal democratization has highly heterogeneous but substantive e ffects on economic prosperity.