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Democracy and Growth Reconsidered: Why Economic Performance of New Democracies is not Encouraging

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  • Polterovich, Victor
  • Popov, Vladimir

Abstract

There are two innovations as compared to the previous literature on democratization and growth. First, not only the level of democracy is taken into account, but also changes in this level in the 1970s-1990s as measured by the political rights indices of the Freedom House. Second, the distinction is made between the rule of law and democracy, the rule of law being defined as the ability to ensure order based on legal rules; it is measured by the rule of law, investors’ risk and corruption indices. It is found that democratization in countries with strong rule of law (liberal democracies) stimulates economic growth, whereas in countries with poor rule of law (illiberal democracies) democratization undermines growth. In illiberal democracies institutions are weaker, shadow economy is larger and macroeconomic policy is less prudent.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21606.

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Date of creation: 2005
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Handle: RePEc:pra:mprapa:21606

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Keywords: Economic growth; democracy; rule of law;

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References

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  1. Nelson, Michael A & Singh, Ram D, 1998. "Democracy, Economic Freedom, Fiscal Policy, and Growth in LDCs: A Fresh Look," Economic Development and Cultural Change, University of Chicago Press, vol. 46(4), pages 677-96, July.
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  5. Jan Fidrmuc, 2001. "Economic Reform, Democracy and Growth During Post-Communist Transition," William Davidson Institute Working Papers Series 372, William Davidson Institute at the University of Michigan.
  6. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
  7. Dethier, Jean-Jacques & Ghanem, Hafez & Zoli, Edda, 1999. "Does democracy facilitate the economic transition : an empirical study of Central and Eastern Europe and the Former Soviet Union," Policy Research Working Paper Series 2194, The World Bank.
  8. Polterovich, Victor & Popov, Vladimir, 2003. "Accumulation of Foreign Exchange Reserves and Long Term Growth," MPRA Paper 20069, University Library of Munich, Germany.
  9. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
  10. Jeffrey D. Sachs, 1989. "Social Conflict and Populist Policies in Latin America," NBER Working Papers 2897, National Bureau of Economic Research, Inc.
  11. Polterovich, Victor, 2007. "Institutional Trap," MPRA Paper 20595, University Library of Munich, Germany.
  12. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Governance matters," Policy Research Working Paper Series 2196, The World Bank.
  13. Ellman, Michael, 2000. "The 1947 Soviet Famine and the Entitlement Approach to Famines," Cambridge Journal of Economics, Oxford University Press, vol. 24(5), pages 603-30, September.
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  15. repec:fth:eeccou:146 is not listed on IDEAS
  16. Michael D. Intriligator, 1998. "Democracy In Reforming Collapsed Communist Economies: Blessing Or Curse?," Contemporary Economic Policy, Western Economic Association International, vol. 16(2), pages 241-246, 04.
  17. Adam Przeworski & Fernando Limongi, 1993. "Political Regimes and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 51-69, Summer.
  18. Vladimir Popov, 2000. "Shock Therapy Versus Gradualism: The End Of The Debate (Explaining The Magnitude Of Transformational Recession)," Comparative Economic Studies, Palgrave Macmillan, vol. 42(1), pages 1-57, April.
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Citations

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Cited by:
  1. Vladimir Popov, 2006. "Shock Therapy Versus Gradualism Reconsidered: Lessons From Transition Economies After 15 Years Of Reforms," Working Papers w0068, Center for Economic and Financial Research (CEFIR).
  2. Madeeha Gohar Qureshi & Eatzaz Ahmed, 2012. "The Inter-linkages between Democracy and Per Capita GDP Growth: A Cross Country Analysis," PIDE-Working Papers 2012:85, Pakistan Institute of Development Economics.
  3. Marek Dabrowski, 2008. "Policy Challenges Faced by Low-Income CIS Economies," CASE Network Studies and Analyses 0375, CASE-Center for Social and Economic Research.

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