Does democratization spur growth?

Many studies have considered how democratization affects economic growth. We expand this work by allowing short‐ and long‐run effects of democracy upon growth to differ since effects during political transitions need not coincide with those under established democracies. We also allow these short‐ and long‐run effects to differ across world regions since history, demography and geography vary across regions. Using annual, cross‐county data from 1960 to 2010, we find that democratizations increased growth rates in sub‐Saharan Africa both in the short run and in the long run but lowered them in Europe. Effects in other regions appear less strong. Our results suggest that democracy could be most beneficial for growth in poorer, less stable regions. We also do not find any evidence of a transitional cost. Stronger evidence arises that these effects come from rising productivity rather than through greater investment. Finally, some support though mixed suggests that democracy's ability to mitigate the effects of ethnic heterogeneity provides a partial explanation for the cross‐regional heterogeneity.