Working Paper: CEPR ID: DP5499
Authors: Torsten Persson; Guido Tabellini
Abstract: Does democracy promote economic development? We review recent attempts to addresses this question, which exploit the within-country variation associated with historical transitions in and out of democracy. The answer is positive, but depends - in a subtle way - on the details of democratic reforms. First, democratizations and economic liberalizations in isolation each induce growth accelerations, but countries liberalizing their economy before extending political rights do better than those carrying out the opposite sequence. Second, different forms of democratic government and different electoral systems lead to different fiscal and trade policies: this might explain why new presidential democracies grow faster than new parliamentary democracies. Third, it is important to distinguish between expected and actual political reforms: expectations of regime change have an independent effect on growth, and taking expectations into account helps identify a stronger growth effect of democracy.
Keywords: democracy; difference-in-difference estimations; growth; institutions; reform
JEL Codes: E0; O1; P0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| democratizations (P39) | growth accelerations (O41) |
| economic liberalizations (P19) | growth accelerations (O41) |
| sequence of reforms (P21) | economic growth (O49) |
| type of democracy (D72) | fiscal and trade policies (O23) |
| type of democracy (D72) | economic outcomes (F61) |
| expected regime change (P27) | growth (O40) |
| actual democracy (D72) | growth acceleration (O40) |