infonet-economy

Economically highly developed countries are mostly democratic. But does this association constitute a causal relationship according to which democracy is a determinant of economic development? Or is it, conversely, economic development that paves the way for democratization? This paper gives an overview of the recent empirical literature that has dealt with this question. The empirical evidence raises doubts about the existence of any direct causation. However, there seem to be indirect causal mechanisms. Democracies seem to implement better conditions for the accumulation of human capital, in particular in terms of a rule of law. On the other hand, democracies do not simply arise as consequence of economic development, but because of an adequate social environment with little inequality, which may be associated with economic well-being.