Working Paper: CEPR ID: DP7393
Authors: Nauro F. Campos; Fabrizio Coricelli
Abstract: The relationship between economic and political liberalization has received a great deal of attention lately, yet the possibility of a non-linear relationship and the role of reversals remain largely neglected. Focusing on democratization and financial reform, this paper offers evidence for a U-shaped relationship across countries, over time as well as in a panel setting using a wide range of estimators for various reform measures. We link this non-linear relationship to the notion of partial or captured democracy. We provide as well econometric support showing that even when de facto is modelled as a function of de jure financial liberalization, this non-linearity obtains.
Keywords: economic liberalization; financial reform; political liberalization; reform reversals
JEL Codes: C23; D72; O38; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial liberalization (F30) | political reform (D72) |
| political reform (D72) | financial reform (G28) |
| initial conditions (C62) | financial reform (G28) |
| intermediate regimes of partial democracy (P39) | financial reform (G28) |
| de jure measures of financial reforms (G18) | de facto measures of financial reforms (G18) |
| full-fledged democracy (D72) | financial reform (G28) |
| partial democracies (D72) | financial liberalization (F30) |