Does democracy promote economic development? We review recent attempts to address this question, which exploit the within-country variation associated with historical transitions in and out of democracy. The answer is positive, but depends %u2013 in a subtle way %u2013 on the details of democratic reforms. First, democratizations and economic liberalizations in isolation each induce growth accelerations, but countries liberalizing their economy before extending political rights do better than those carrying out the opposite sequence. Second, different forms of democratic government and different electoral systems lead to different fiscal trade policies: this might explain why new presidential democracies grow faster than new parliamentary democracies. Third, it is important to distinguish between expected and actual political reforms: expectations of regime change have an independent effect on growth, and taking expectations into account helps identify a stronger growth effect of democracy.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
11993.
Length: Date of creation: Feb 2006 Date of revision: Handle: RePEc:nbr:nberwo:11993
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Find related papers by JEL classification: P0 - Economic Systems - - General O1 - Economic Development, Technological Change, and Growth - - Economic Development E0 - Macroeconomics and Monetary Economics - - General
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