Discussion Paper Series, Chair of Economic Order and Social Policy, Universität Würzburg 131
Evidence from a novel measure of democracy (SVMDI) based on Support Vector Machines highlights a robust positive relationship between democracy and economic growth. We argue that the ambiguity in recent studies can be traced back to the neglect of the information in the equation in levels and the lack of sufficient sensitivity of traditional democracy indicators. We further analyze the transmission channels through which democracy exerts its influence on growth, concluding that democratic countries have better educated populations, higher investment shares, lower fertility rates, but not necessarily higher levels of redistribution. The latter explains why we find only little indication of a nonlinear effect of democracy on growth.