Does democracy transfer growth spillovers?

The relationship between democracy and economic growth has been widely debated since the 1980s, yet economists have not reached a consensus on its impact. This study examines this relationship using a spatial econometric approach across 100 countries from 1990 to 2022, incorporating both economic factors and spatial dynamics, such as geographical proximity and democratic context. A key innovation is the concept of institutional proximity, which posits that countries with similar institutional frameworks experience similar economic growth outcomes. The study provides strong evidence of positive growth spillovers from democracy, where democratic governance in one country enhances economic performance in other democratic nations, highlighting the interconnectedness of political and economic systems. Additionally, it uncovers spillover effects in which democratic countries transfer technology to less democratic regions, thus fostering global economic advancement. Notably, these effects extend beyond geographical proximity, with countries such as Australia, New Zealand, and Japan benefiting from democracy’s influence despite being distant from the epicentres of democracy. This challenges the notion that democracy’s impact is geographically confined, demonstrating its potential to drive global growth across national borders.