Prior research on democracy's effect on economic performance generally, often implicitly, contains an unsound assumption, which is that voters demand the highest possible rate of growth. A different assumption can be drawn from an analysis of the likely risk/return preferences of voters. It is that a democracy's performance will reflect not an unconstrained desire for growth, but a balancing of a desire for growth and the risks involved in attaining higher growth. The research in this project develops the hypothesis that the way in which democracies will differ from dictatorships is that democracies will seek either low volatility growth strategies or higher volatility strategies that are predictably well compensated by higher rates of growth. Initial investigation has shown that when two dimensions of economic performance are examined - - the rate and variability of growth - - countries with a high level of democracy in 1972-73 unquestionably showed superior economic performance compared to non-democracies in a cross-sectional regression analysis of a sample of 108 countries, 1974-1989. The researchers develop and extend the investigation by addressing the following questions: 1) does a higher initial level of democracy lead to improved economic performance in a broader sample of countries for the longest period of time available? 2) as opposed to base-year democracy, what is the connection between within-period democratization and democratization and growth in both its dimensions? 3) what are the political correlates of volatility in the rate of growth? The main objective of the project is to examine the core hypothesis of the research, which is whether or not democracy is, as the investigators argue, the economically efficient form of government. Another objective is to establish the robustness of the findings from a pilot study, and to re-examine previous studies of voting and economic performance in light of the reported results. This research examines one of the most important question in the study of political economics: does democracy affect national economic performance and if so, how? The data collected will be of use to other scholars interested in the question.
