Foreign Aided: Why Democratization Brings Growth When Democracy Does Not

Abstract

There is an unresolved puzzle in research on the economics of democracy. While there is consensus that democracy is not generally associated with higher rates of economic growth, recent studies have found that democratization is followed by growth. But why shouldbecominga democracy bring growth ifbeingone does not? This article shows that a substantial and immediate influx of foreign aid into new democracies accounts for the positive growth effect of democratization. The domestic regime characteristics of neither democracy nor democratization therefore seems to bring growth. The importance of aid in explaining the democratization-growth nexus underscores that democratizations do not occur in vacuum and cannot be fully understood from internal factors alone.

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