Democracy and Development: The Devil in the Details
Number: 302
Year: 2006
Author(s): T. Persson (Stockholm University) and G. Tabellini (Università Bocconi and IGIER)
Does democracy promote economic development? This paper reviews recent
attempts to addresses this question that exploited within-country variation.
It shows that the answer is largely positive, but also depends on the details
of democratic reforms. First, the sequence of economic vs political reforms
matters: countries liberalizing their economy before extending political rights
do better. Second, different forms of democratic government lead to different
economic policies, and this might explain why presidential democracy leads
to faster growth than parliamentary democracy. Third, it is important to distinguish
between expected and actual political reforms. Taking expectations of regime
change into account helps identify a stronger growth effect of democracy.
attempts to addresses this question that exploited within-country variation.
It shows that the answer is largely positive, but also depends on the details
of democratic reforms. First, the sequence of economic vs political reforms
matters: countries liberalizing their economy before extending political rights
do better. Second, different forms of democratic government lead to different
economic policies, and this might explain why presidential democracy leads
to faster growth than parliamentary democracy. Third, it is important to distinguish
between expected and actual political reforms. Taking expectations of regime
change into account helps identify a stronger growth effect of democracy.
Keywords: Democracy; Reform; Growth; Institutions; Difference in Difference
JEL codes: P0; O1; E0