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Baltic Dry Index and the democratic window of opportunity

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  • Lin, Faqin
  • Sim, Nicholas C.S.

Abstract

In their seminal paper, Brückner and Ciccone (2011) document that a significant effect of democratic change may be triggered by negative transitory economic shocks, and that rainfall can open a democratic window of opportunity in sub-Saharan Africa (SSA). As a complement, this paper uses within-country variation in the Baltic Dry Index (BDI) as a source of transitory negative income shocks to SSA countries. The BDI reflects the cost of utilizing dry bulk carriers, which are specially designed vessels for transporting primary goods internationally, where these goods dominate the output and export sectors of the SSA economies. We find that positive BDI cost shocks are followed by significant contraction in income through trade channel and significant improvement in democratic institutions, where BDI can open a window of opportunity for democratic improvement. Instrumental variables estimates indicate that following a negative income shock of one percentage point, democracy scores improve by around 4–5 percentage points on average.

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Bibliographic Info

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

Volume (Year): 42 (2014)
Issue (Month): 1 ()
Pages: 143-159

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Handle: RePEc:eee:jcecon:v:42:y:2014:i:1:p:143-159

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

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Keywords: Democracy; Income; Baltic Dry Index; Instrument variable;

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