Democratic Capital: The Nexus of Political and Economic Change

61 Pages Posted: 27 Jul 2006

See all articles by Torsten Persson

Torsten Persson

Stockholm University - Institute for International Economic Studies (IIES); London School of Economics & Political Science (LSE); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Guido Tabellini

Bocconi University - Department of Economics; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; Center for Economic Studies and Ifo Institute for Economic Research (CESifo)

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Date Written: May 2006

Abstract

We study the joint dynamics of economic and political change. Predictions of the simple model that we formulate in the paper get considerable support in a panel of data on political regimes and GDP per capita for about 150 countries over 150 years. Democratic capital - measured by a nation's historical experience with democracy and by the incidence of democracy in its neighborhood - reduces the exit rate from democracy and raises the exit rate from autocracy. In democracies, a higher stock of democratic capital stimulates growth in an indirect way by decreasing the probability of a successful coup. Our results suggest a virtuous circle, where the accumulation of physical and democratic capital reinforces each other, promoting economic development jointly with the consolidation of democracy.

Keywords: Economic growth, hazard rates, political regimes

JEL Classification: D70, H11, N10, O11

Suggested Citation

Persson, Torsten and Tabellini, Guido, Democratic Capital: The Nexus of Political and Economic Change (May 2006). CEPR Discussion Paper No. 5654, Available at SSRN: https://ssrn.com/abstract=920875

Torsten Persson (Contact Author)

Stockholm University - Institute for International Economic Studies (IIES) ( email )

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London School of Economics & Political Science (LSE)

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Guido Tabellini

Bocconi University - Department of Economics ( email )

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Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

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Italy

Center for Economic Studies and Ifo Institute for Economic Research (CESifo)

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