1 Democracy , Governance and Economic Growth : Theory and Evidence

This paper examines how democracy affects long-run growth by influencing the quality of governance. Empirical evidence is presented showing that the quality of governance is substantially higher in democratic countries. A general-equilibrium, endogenous growth model is then built to show how a governance-improving democracy raises growth. In this model, stronger democratic institutions influence governance by constraining the actions of corrupt officials. Reducing corruption, in turn, stimulates technological change and spurs economic growth. Empirical evidence is presented showing that democracy is in fact a significant determinant of total factor productivity (TFP) growth between 1960 and 1990 in a cross-section of countries. But this contribution occurs only insofar as democratic institutions are associated with greater quality of governance. * An earlier version of this paper was presented at the conference: Democracy, Participation and Development, sponsored by the Program in Economic Policy Management at Columbia University and held on April 1999 in New York city. The author is grateful to two anonymous referees for useful comments.