Democracy and Economic Growth: Optimal Level and Transmission Channels

After evening out all the benefits and costs, the overall optimal level of democracy is about 3.2, on a scale of 1 to 7. On average, fully dictatorial countries have a conditioned growth rate of –1.113 percent, fully democratic countries have a conditioned growth rate of 1.146 while countries with the optimal level of democracy/autocracy have a conditioned growth rate of 2.665. In the case of a fully dictatorial country, moving one unit towards democracy can raise the GDP growth rate by about 1.725 points; while for a fully democratic country, moving towards autocracy by one unit can raise the growth rate by about 0.885 points. This study provides useful information for many developing countries which are experiencing substantial pressures to restructure their political system.