Democracy, Volatility, and Economic Development

42 Pages Posted: 9 Aug 2005

See all articles by Ahmed Mushfiq Mobarak

Ahmed Mushfiq Mobarak

Yale School of Management; Yale University - Cowles Foundation

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

Mobarak, Ahmed Mushfiq, Democracy, Volatility, and Economic Development. Review of Economics and Statistics, Vol. 87, No. 2, pp. 348-361, May 2005. Available at SSRN: https://ssrn.com/abstract=770982

Ahmed Mushfiq Mobarak (Contact Author)

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5787 (Phone)

HOME PAGE: http://mba.yale.edu/faculty/profiles/mobarak.shtml

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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