Does Democracy Produce Quality of Government?

Abstract

This paper analyzes the effects of political regimes over state capacity or the quality of government (QoG): do democratic states perform better than authoritarian ones? Previous studies on this puzzle point to a nonlinear relationship between democracy and government quality. We argue that QoG is a function of both forces of supply (leaders which have the power to make reforms) and demand (citizens’ desire for mid-to-long term investments over short term needs), the latter of which is a function of economic development. In democratic states, leaders have stronger incentives to improve QoG after a certain degree of wealth is reached, while in poorer countries they have little incentive for long-term bureaucratic investments. Thus we predict that the relationship between democracy and QoG is conditional, based on economic development. With over 125 countries in our sample, we test our hypothesis using time series, panel data and spatial models and find strong empirical support for our claim.