Democracy and Economic Performance: Micro Evidence from Brazil

This paper creates democracy indicators for over 4000 municipalities in Brazil, and studies their impact on economic performance. Municipality-level growth regressions control for the effects of local crop production and their price movements, the sectoral composition of the local economy, income inequality, inflation, ethnic and religious composition of the population, and a conditional convergence parameter, in addition to two democracy indicators: Political Participation and Political Competition. Participation measures voting rates and competition measures the closeness of election outcomes. Both have statistically and economically significant effects on growth, but in opposite directions. Participation enhances growth partly by forcing politicians to provide more public services, while competition deters growth possibly due to the wasteful conflict expenditures associated with stiffer political competition. These results help clarify the lack of consensus in the cross-country democracy-growth literature. Ahmed Mushfiq Mobarak University of Colorado, Boulder