Tecnical Note - Political Regimes and Economic Growth: A Time-series Analysis

This paper studies the relationship between democracy and economic growth with a time series approach. For a number of Latin America and European countries we estimate the long term effect of a democratic shock on the per capita GDP growth rate. The starting point is an Autoregressive Vector (VAR) acting as general unrestricted model (GUM). This general model is subjected through an automatic reduction process using a General to Specific (GETS) algorithm. This methodology ensures the weak exogeneity of the variables with respect of the parameters of interest and allows to investigate the strong exogeneity. Results show no clear patterns for the relation between political regime and economic performance, which is indicative of a country-specific relationship. In the Chilean case, a democratic shock takes 4 years to have a positive impact on the growth rate of GDP per capita. The maximum effect is reached after 10 years.