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Political democratization, economic liberalization, and growth volatility

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  • Yang, Benhua
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    Abstract

    This study empirically investigates the effects of political and economic liberalization on growth volatility using a difference-in-difference method for a sample of 158 countries over the 1970-2005 period. The results show that, when examined separately, economic liberalization leads to a significant reduction in volatility while democratization is not followed by a decrease in growth volatility. For countries that undertake only one liberalization, opening up the economy to international trade reduces volatility in growth; becoming a democracy, on the other hand, seems to increase macroeconomic instability. For countries that implement both political and economic liberalizations, no statistically significant effect on volatility is detected. These results serve to provide additional support for the policy recommendation that developing countries should liberalize their economy first and then consider political liberalization.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0147596710000648
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Comparative Economics.

    Volume (Year): 39 (2011)
    Issue (Month): 2 (June)
    Pages: 245-259

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    Handle: RePEc:eee:jcecon:v:39:y:2011:i:2:p:245-259

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    Web page: http://www.elsevier.com/locate/inca/622864

    Related research

    Keywords: Growth volatility Liberalization Democracy Difference-in-difference;

    References

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    Cited by:
    1. Sambit Bhattacharyya, 2011. "Political Origins of Financial Structure," CSAE Working Paper Series 2011-20, Centre for the Study of African Economies, University of Oxford.

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