Democracy and the Variability of Economic Performance
University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)
London School of Economics & Political Science (LSE) - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
March 5, 2002
Sah (1991) conjectured that more centralized societies should have more volatile performances than less centralized ones. We show in this paper that this is true both for cross-country and within-country variability in growth rates. It is also true for some measures of policies. Finally, we show that both the best and worst performers in terms of growth rates are more likely to be autocracies. These empirical results are unaffected by many robustness and specification checks. We argue that the evidence in the paper is consistent with the theoretical implications in Sah and Stiglitz (1991) and Rodrik (1999). The greater stability of growth rates and policy measures among democratic countries adds to an existing list of desirable features of democracies. Our evidence also corroborates the common view that some autocratic countries had the most impressive growth experiences. However, since the worst experiences are also associated with autocratic countries, in an ex-ante sense autocracy is no prescription for growth.
Number of Pages in PDF File: 54
Keywords: Democracy, autocracy, growth, variability, fallibility, centralization of decision-making
JEL Classification: P16, P51, O40, O50, H11
Date posted: March 18, 2002
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