Democratic Favor Channel

TL;DR

This paper investigates how the perceived positive effects of democracy on economic growth are influenced by external favoritism and sanctions, suggesting that democracy's benefits may be overstated due to these external factors.

Contribution

It introduces the concept of the democratic favor channel, showing that external sanctions and military actions significantly mediate democracy's impact on growth.

Findings

Most positive effects of democracy on growth diminish after controlling for sanctions and military conflicts.

Sanctions and lack of defense cooperation are plausible channels through which democracy affects growth.

In the pre-Soviet period, democracy's impact on GDP was weak or negative, strengthening the democratic favor argument.

Abstract

A large body of literature in economics and political science examines the impact of democracy and political freedoms on various outcomes using cross-country comparisons. This paper explores the possibility that any positive impact of democracy observed in these studies might be attributed to powerful democratic nations, their allies, and international organizations treating democracies more favorably than nondemocracies, a concept I refer to as democratic favor channel. Firstly, after I control for being targeted by sanctions from G7 or the United Nations and having military confrontations and cooperation with the West, most of the positive effects of democracy on growth in cross-country panel regressions become insignificant or negatively significant. Secondly, using the same empirical specification as this literature for demonstrating intermediating forces, I show that getting sanctioned, militarily attacked, and not having defense cooperation with the West are plausible channels through which democracy causes growth. Lastly, in the pre-Soviet-collapse period, which coincides with the time when democracy promotion was less often used as a justification for sanctions, the impact of democracy on GDP per capita is already weak or negative without any additional controls, and it becomes further negative once democratic favor is controlled. These findings support the democratic favor channel and challenge the idea that the institutional qualities of democracy per se lead to desirable outcomes. The critique provided in this paper applies to the broader comparative institutions literature in social sciences and political philosophy.