Depends if we mean theocracy or Islamic laws/majority. As long as we don't equate an Islamic state to be automatically a theocracy then we have a few positive examples.
I can think of three large democratic states who have a lot of Muslims, some of them heavy in Islamic laws yet still democracies... All three in the long term trends are doing well... Not as well as their more secular democratic neighbors but better then the local despots of any faith i.e. Compare Malaysia vs Burma
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