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Democratic Transitions and Institutional Change: What's Behind the Association?

38 Pages Posted: 24 May 2014  

Christian Bjørnskov

Aarhus University - Department of Economics and Business; Research Institute of Industrial Economics (IFN); Center for Political Studies

Martin Rode

University of Navarra

Date Written: May 22, 2014

Abstract

Many empirical studies have shown democracies to be more supportive of sound economic institutions than authoritarian regimes and recent analysis also finds that democratic transitions are followed by overall improvements in economic freedom. This sheds some light on a possible chain of causality, but up to date it is virtually unknown through which channel democracy actually creates institutional improvements. Employing a dataset by Cheibub et al. (2010), we identify 41 political transitions to democracy since the mid-1970s, for which measures on economic institutions and policies are also available. Panel data analysis is used to examine the outcome of democratization within the framework of a fixed- and random-effects model. To control for possible endogeneity, the paper further employs an instrument for democratic transitions, based on observations by Huntington (1991). Results mainly indicate that stable transitions to democracy are followed by strongly improved access to sound money, while unstable transitions seem to impede it. We further find evidence that the improved access to sound money is driven by the installation of more independent central banks in newly established electoral democracies.

Keywords: Political regimes, Democratization, Economic institutions, Instability

JEL Classification: O43, P51

Suggested Citation

Bjørnskov, Christian and Rode, Martin, Democratic Transitions and Institutional Change: What's Behind the Association? (May 22, 2014). Available at SSRN: https://ssrn.com/abstract=2440733 or http://dx.doi.org/10.2139/ssrn.2440733

Christian Bjørnskov (Contact Author)

Aarhus University - Department of Economics and Business ( email )

Fuglesangs Allé 4
Aarhus V, DK-8210
Denmark

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Center for Political Studies

Landgreven 3
Copenhagen K, DK-1301
Denmark

Martin Rode

University of Navarra ( email )

Camino del Cerro del Aguila, 3
Pamplona, Navarra 31080
Spain

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