Democracy, Volatility, and Economic Development
42 Pages Posted: 9 Aug 2005
Abstract
Growth stability is an important objective - because development requires sustained increases in income, because volatility is costly for the poor, and because volatility deters growth. We study the determinants of average growth and its volatility as a two-equation system, and find that higher levels of democracy and diversification lower volatility, whereas volatility itself reduces growth. Muslim countries instrument for democracy, and measures of diversification identify volatility. In contrast to the lack of consensus on the democracy-growth relationship, the democracy-stability link is robust. Rather than focus on growth, this paper forges an alternative link between democracy and development through the volatility channel.
Keywords: Democracy, growth, volatility, development
JEL Classification: O11, N10
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Using Asset Prices to Measure the Cost of Business Cycles
By Fernando Alvarez and Urban J. Jermann
-
Evaluating Risky Consumption Paths: the Role of Intertemporal Substitutability
-
The Cost of Business Cycles Under Endogenous Growth
By Gadi Barlevy
-
The Cost of Business Cycles Under Endogenous Growth
By Gadi Barlevy
-
Reconsidering the Costs of Business Cycles with Incomplete Markets
By Andrew Atkeson and Christopher Phelan
-
By Kjetil Storesletten, Chris Telmer, ...
-
Technology (and Policy) Shocks in Models of Endogenous Growth
By Larry Jones, Rody Manuelli, ...
-
Recursive Utility, Endogenous Growth, and the Welfare Cost of Volatility
By Anne Epaulard and Aude Pommeret
-
Technology Commitment and the Cost of Economic Fluctuations
By Garey Ramey and Valerie A. Ramey