Incumbents voluntarily leaving office after losing elections is a hallmark of democracy. Hence, the most prominent binary democracy measure (Democracy–Dictatorship/Alvarez–Cheibub–Limongi–Przeworski [DD/ACLP]) requires observed alternation in power to score regimes democratic. Such “alternation rules” may, however, lead to underestimating democracy’s effect on economic growth. As strong economic performance reduces the probability of incumbents losing democratic elections, young democracies with high growth may falsely be coded dictatorships; their popular governments have yet to lose an election. We identify the expected bias using different tests, for example, when following Przeworski et al.’s advice to re-estimate relationships after re-coding multi-party regimes without alternation as democratic, or when employing differences in information about alternation from different time points to contrast original DD estimates with our “real-time” DD estimates. We present resembling arguments on how alternation rules may bias democracy’s estimated relationships with civil war onsets and coups, but find fewer empirical indications of biases here.
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