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Democratic Capital: The Nexus of Political and Economic Change

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  • Torsten Persson
  • Guido Tabellini

Abstract

We study the dynamics of economic and political change, theoretically and empirically. Democratic capital measured by a nation's historical experience with democracy, and the incidence of democracy in its neighborhood, appears to reduce exit rates from democracy and raise exit rates from autocracy. Higher democratic capital stimulates growth by increasing the stability of democracies. Heterogeneous effects of democracy induce sorting of countries into political regimes, which helps explain systematic differences between democracies and autocracies. Our results suggest the possibility of a virtuous circle, where accumulation of physical and democratic capital reinforce each other, promoting economic development and consolidation of democracy. (JEL D72, I31, N10, N40, O47)

Suggested Citation

  • Torsten Persson & Guido Tabellini, 2009. "Democratic Capital: The Nexus of Political and Economic Change," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(2), pages 88-126, July.
    • Handle: RePEc:aea:aejmac:v:1:y:2009:i:2:p:88-126
    Note: DOI: 10.1257/mac.1.2.88
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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N40 - Economic History - - Government, War, Law, International Relations, and Regulation - - - General, International, or Comparative

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