Oslo seminar in positive political science BI, Oslo, 12/2 2009 Carl Henrik Knutsen

1. “How democracy and dictatorship affect economic growth: Evidence from James Monroe and the Quing Dynasty to George W. Bush and the Communist Party.” Oslo seminar in positive political science BI, Oslo, 12/2 2009 Carl Henrik Knutsen

2. Research question • Is there an effect from democracy on economic growth? • Average effect • The categorization of political regimes. Democracy-dictatorship continuum and conceptual uni-dimensionality • A bit crude, but nevertheless an interesting and much debated question • Academic debates • Policy debates

3. The important conclusions • There is a likely positive effect on economic growth from democracy. • The overall evaluation of theoretical arguments pointing to democracy’s growth advantage • Different econometric analyses find a relatively robust effect on a very extensive data sample. Estimated 1 percentage point extra annual growth in GDP per capita from “full democratization”. • No support for Barro’s inverse U-curve. The more democracy, the better for growth

4. Structure paper • Introduction with short review of answers/positions taken on the research question • Theoretical arguments • 4 Przeworski and Limongi arguments + 1 extra • Multiple mechanisms and no single, dominating coherent theoretical framework • Scorecard • Data • Empirical analysis, • OLS with PCSE • FE and RE (answer to: what if unobserved country-specific effects?) • 2SLS (answer to: what if substantial endogeneity bias?) • Matching (non-linear effects) • Short empirical section on Barro’s claim that semi-democracy is better for growth • Conclusion

5. The (very!) general framework Aspect of political regime related to degree of democracy (ch&bal, free speech, free and fair elections…) Policy Change in inputs (physical and human capital, labor), efficiency, technological change Economic growth

6. Summary theoretical scorecard

7. Data • Maddison’s data • Historical data on GDP and population • 1945 or 1960 as “year 0” in quantitative analysis • Draws on different sources, uncertainty • Includes many countries often left out of other databases: e.g. North Korea. • Reduces systematic selection The effect from democracy has been underestimated earlier • Polity, from 1800.. • First year used in analysis is 1820

8. OLS with PCSE • GRi,t= β0+β1polityi,t-2 + β2ln(dur+1)i,t-2 + β3ln(gdp/cap)i,t-2 + β4ln(pop)i,t-2 + Σβjreligi+ Σβkregi+ Σβlperiodl • Four models: small (n=8933) and interpolated samples (n=9438), five period vs decade time controls • All significant at 1%-level • Estimated polity-coefficients between 0.047 and 0.049. • RE: relatively similar to OLS with PCSE • FE: significant at 5%-level when five-period contrls, insignificant when decade-dummies

9. 2SLS (G2SLS: random effects IV) • Instrument Dem Growth • Huntington’s waves and exogenous variation in regime type (global trends and contagion from neighbours exogenous to national politics) • 2SLS as consistent, but relatively inefficient • Model with decade dummies: sig at 10%-level with interpolated sample, t=1.51 for small sample • However, larger point estimates than OLS with PCSE, RE and FEHausman tests find no significant difference with RE modelgo with the more efficient RE? • Extra instrument to strengthen efficiency (absolute latitude from Hall and Jones) Both models sig at 5%-level

10. Matching

11. Barro’s inverse U?

12. Conclusion • Different methods, based on different assumptions, indicate a positive effect from democracy on growth when using the largest sample of data available. • No democracy-growth trade-off, rather to the contrary.