HARVARD DPI 403 - The impact of democracy on economic growth and social welfare

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Norris 1DPI 403 Class 3The impact of democracy on economic growth and socialeconomic growth and social welfareNorris 2Pi lPrevious classes1. Overview and roadmap2Can democratization be strengthened by2.Can democratization be strengthened by the international community?BarbaraWejnert: international forcesBarbara Wejnert: international forces outweigh domestic factorsWhat strategies are used? Menu ofWhat strategies are used? Menu of alternative types of interventions.Norris 3Pli lPolicy cyclePolicy advocacyPolicy analysisPolicy implementationPolicy optionsNorris 4Impact of democraticdemocratic governance1.Economic growth2. Social welfare3. Peace (next class)growthwelfare(next class)‘Yes’ Rodrik et al‘Yes’Siegle et al‘Yes’ Norris‘No’ ‘No’MansfieldPrzeworski et al‘No’ RossNo Mansfield & SnyderNorris 5RdiReadings Dani Rodrik Institutions Rule?AdamPrzeworskiInstitutions Matter?Adam PrzeworskiInstitutions Matter? Michael Ross Democracy good for the poor?poor? Haerpfer Ch 8 Democracy and capitalismNorris 6St t d dbtStructure: advocacy debateI. Context: does democratic governance matter ginstrumentally for development?IIDoes democratic governance lead toII.Does democratic governance lead to economic growth?IIIDoes democratic governancelead tosocialIII.Does democratic governance lead to social welfare?IV. Discussion exerciseV.[Next class] Does democracy lead to peace?[]ypNorris 7I Context:DoesI. Context: Does democratic governance matter instrumentally for development?development?Norris 8UN Millennium Development Goals1. Eradicate Poverty & Hunger 2. Achieve Universal Primary Education3. Promote Gender Equality4. Reduce Child Mortality5Improve Maternal Health5.Improve Maternal Health6. Combat HIV AIDS, Malaria and Other Diseases 7. Ensure Environmental Sustainabilityy8. Develop a Global Partnership for DevelopmentA d UN GA S t 2000 T t d dli 2015Agreed UN GA Sept 2000. Target deadline: 2015Norris 9Annual growth in real GDP per capita2.53h Rate1.52GDP per Capita Growthercent)0.51Annual Average Real G(pe01820-70 1870-1913 1913-50 1950-73 1973-2001 2001-2005AnReal GDP per Capita Mean Ratios1820 1913 1950 1960 1970 1980 1990 2001 2005*Mean of Top 10 to Mean of Bottom 10 Countries 3 7212123273447 50Mean of Top 20 to Mean of Bottom 20 Countries 2 5141518222735 37Norris 10Yet persistence of extreme povertyYet persistence of extreme poverty 45465028453339303540452820211715202530199020012110031010520510150Developingcountriesandtransitioni N. AfricaandW.Asia Sub-SaharanAfrica LatinAmericaand Carib E Asia S Asia SE AsiaandOceaniaCIS Balkanseconomies Note: % Pop living on less than $1/day, 1990-2001. High income nations are excluded.Source: Millennium Development Goals Report 2005Norris 11G th f USAID diGrowth of USAID spendingNorris 12II. Does democratic governance lead togovernance lead to economic growth?Norris 13Dbt b tth i tDebate about the impactImpact of democraticdemocratic governanceEconomic growthSocial welfarePeace (next class)‘Yes’ Rdiktl‘Yes’Si ltl‘Yes’ NorrisRodriket al‘No’Siegleet al‘N ’ M fi ldNo Przeworski et al‘No’ Ross‘No’ Mansfield & SnyderNorris 14Rdiktl‘I titti Rl’Rodriket al ‘Institutions Rule’Trade(markets)Geography(Climate, resources, transport, health, itiInstitutions (property rights, rule of law)Economiccommunications, agriculture)rule of law)Economic growthEndogeneity? Reverse causality? Instrumental variablesNorris 15RdikdlRodrikmodelIncome level(GDP per capita Integration (ratio trade/GDP)Institutions. Geography(distance from(distance from equator)Norris 16Norris 17I tit ti l i blInstitutional variables Institutions= property rights and rule of lawMeasured by Kaufmann-Kray/World BankMeasured by KaufmannKray/World Bank Settler mortality rates (Acemoglu 2001)I t t d b ttlInstruments are measured by settler mortality rates (79 nations) and by % ki W t E l (137speaking West European languages (137 nations)Norris 18Norris 19Norris 20RdikCliRodrikConclusions “The quality of institutions trumps everything qy p ygelse. Once institutions are controlled for, integration has no direct effect on incomes, while ffgeography has at best weak direct effects.” p135.Alt ti b t ltAlternative measures, robust results Instrument not an explanation: colonial history? Policy implications? ‘Not much at all’ (!) egvaried property rights in China and RussiaSt th d li it f thi t?Strengths and limits of this account?Norris 21Dbt b tth i tDebate about the impactImpact of democraticdemocratic governanceEconomic growthSocial welfarePeace (next class)‘Yes’ Rdiktl‘Yes’Si ltl‘Yes’ NorrisRodriket al‘No’Siegleet al‘N ’ M fi ldNo Przeworski et al‘No’ Ross‘No’ Mansfield & SnyderNorris 22Pkitl‘N ’Przeworskiet al. ‘No’ Adam Przeworksi, Michael Alvarez, Jose Cheibub and Fernando Limogi. 2000. Democracy and Development. (CUP) Ch3 Does democracy undermine growth? Growth rates of productive inputs Investment share in GDP  Probit model controlling for income, Britcol, religion Unit of measurement: type of regime per year 19501990 (di t t hi d )1950-1990 (dictatorship v. democracy)Norris 23PkitlPrzeworski et al. Conclusions: “There is no trade-off between democracy and development, not even in poor countries.” p178.In poor countries (with incomes below $3 000) the twoIn poor countries (with incomes below $3,000), the two regimes are almost identical in their: Investment sharesGrowth of capital stockGrowth of capital stock Growth of labor force Output per workerPd tProduct wages Democracy need not be sacrificed to economic developmentNorris 24PkitlPrzeworskiet al. Yet important distinction between rich and poor nations Poor nations invest little, get little value from total factor productivity and pay low wagespypyg Most poor nations remain poor Regimes make no difference for growth Democracy is fragile in poor nations so most have dictatorships More affluent nations ($2500-3000+) Total growth rates similar for dictatorships and democracies Yet reasons for growth differ… Wealthy dictatorship grow by using a lot of labor and paying low wages (repressing unions) – labor-intensive productivity, higher birth rates/fertility but shorter longevity (esp. for women) Wealthy democracies grow by using labor more effectively: slower lti dlb th t bthih b fitpopulation and


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