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Democracy and External Shock Resilience in Developing Countries. Evidence from the Great Recession

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  • Essers, Dennis

Abstract

While some developing countries appear to have been largely unaffected by the Great Recession that originated in advanced economies, others took a severe blow in 2008-2009. A number of recent studies have attempted to explain the observed heterogeneity of developing country growth performances during the latest global financial and economic crisis by linking it to pre-crisis macro-economic and financial country features - with rather mixed success. In this newly emerging body of research, surprisingly little attention has, however, been paid to institutional differences between countries, and the variation in political institutional arrangements more particularly. The current paper takes a first shot at bridging this hiatus by gauging the impact of democracy on the crisis growth of developing countries. From a theoretical point of view, and as suggested in the political economy literature, democracy could be either growthretarding or growth-enhancing in times of economic crisis, the overall effect ultimately being an empirical question. Using a cross-section sample of more than 100 non-advanced countries and controlling for a range of macroeconomic, financial and standard institutional factors as well as pre-crisis trends, we find evidence suggesting that, on the whole, democratic country features are negatively correlated with growth performance during the 2008-2009 global crisis. Our findings are seemingly robust to the use of various sets of controls, different estimators, several country subsamples and alternative measures of democracy and crisis growth.

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Bibliographic Info

Paper provided by Universiteit Antwerpen, Institute of Development Policy and Management (IOB) in its series IOB Working Papers with number 2012.02.

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Length: 47 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:iob:wpaper:2012002

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Keywords: Global Financial Crisis; Growth; External Shocks; Democracy;

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  1. Ferhan Salman & Mali Chivakul & Ricardo Llaudes, 2010. "The Impact of the Great Recessionon Emerging Markets," IMF Working Papers 10/237, International Monetary Fund.
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