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Democracy, Diversification and Growth Reversals

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  • David Cuberes
  • Michał Jerzmanowski

Abstract

There is much evidence that less democratic countries experience more high-frequency growth volatility. In this article we report a similar finding about volatility in the medium term: we find evidence that reversals of trend-growth are sharper and more frequent in non-democracies. Motivated by this evidence, we construct a model in which non-democracies have high barriers to entry for new firms. This leads to less sectoral diversification and so, in an uncertain environment, to larger growth swings in less democratic countries. We present empirical evidence that confirms the positive relation between democracy and industrial diversification. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Suggested Citation

  • David Cuberes & Michał Jerzmanowski, 2009. "Democracy, Diversification and Growth Reversals," Economic Journal, Royal Economic Society, vol. 119(540), pages 1270-1302, October.
    • Handle: RePEc:ecj:econjl:v:119:y:2009:i:540:p:1270-1302
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    2. Wiig, Arne & Kolstad, Ivar, 2012. "If diversification is good, why don't countries diversify more? The political economy of diversification in resource-rich countries," Energy Policy, Elsevier, vol. 40(C), pages 196-203.
    3. Raouf Boucekkine & Patrick Pintus, 2012. "History’s a curse: leapfrogging, growth breaks and growth reversals under international borrowing without commitment," Journal of Economic Growth, Springer, vol. 17(1), pages 27-47, March.
    4. Raouf Boucekkine & Giorgio Fabbri & Patrick A. Pintus, 2018. "Short-run pain, long-run gain: the conditional welfare gains from international financial integration," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(2), pages 329-360, March.
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    6. Makhlouf, Yousef & Kellard, Neil M. & Vinogradov, Dmitri, 2017. "Child mortality, commodity price volatility and the resource curse," Social Science & Medicine, Elsevier, vol. 178(C), pages 144-156.
    7. Felipe Starosta de Waldemar, 2010. "How costly is rent-seeking to diversification : an empirical approach," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00461486, HAL.
    8. Lectard, Pauline & Rougier, Eric, 2018. "Can Developing Countries Gain from Defying Comparative Advantage? Distance to Comparative Advantage, Export Diversification and Sophistication, and the Dynamics of Specialization," World Development, Elsevier, vol. 102(C), pages 90-110.
    9. Mohamed Belhaj & Nataliya Klimenko, 2012. "Optimal Preventive Bank Supervision Combining Random Audits and Continuous Intervention," AMSE Working Papers 1201, Aix-Marseille School of Economics, Marseille, France.
    10. 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.
    11. Ivar Kolstad & Arne Wiig, 2014. "Diversification and democracy," CMI Working Papers 9, CMI (Chr. Michelsen Institute), Bergen, Norway.
    12. Andrew Williams, 2014. "The effect of transparency on output volatility," Economics of Governance, Springer, vol. 15(2), pages 101-129, May.
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      [Technological and Institutional Effects Modeling in Macroeconomic Forecasting]      ," MPRA Paper 35484, University Library of Munich, Germany, revised May 2011.
    15. Sam Hak Kan Tang & Charles Ka Yui Leung, 2016. "The Deep Historical Roots of Macroeconomic Volatility," The Economic Record, The Economic Society of Australia, vol. 92(299), pages 568-589, December.
    16. Maria Petrova & Robert H. Bates, 2012. "Evolution of Risk and Political Regimes," Economics and Politics, Wiley Blackwell, vol. 24(2), pages 200-225, July.
    17. Lorenzo Burlon, 2017. "Public expenditure distribution, voting, and growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(4), pages 789-810, August.
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    19. Raouf Boucekkine & Giorgio Fabbri & Patrick Pintus, 2012. "Short-Run Pain, Long-Run Gain: The Conditional Welfare Gains from International Financial Integration The Conditional Welfare Gains from International Financial Integration," AMSE Working Papers 1202, Aix-Marseille School of Economics, Marseille, France, revised 27 Jun 2016.
    20. Adam, Antonis & Delis, Manthos D. & Kammas, Pantelis, 2011. "Are democratic governments more efficient?," European Journal of Political Economy, Elsevier, vol. 27(1), pages 75-86, March.
    21. Francesco Lamperti & Clara Elisabetta Mattei, 2016. "Going Up and Down: Rethinking the Empirics of Growth in the Developing and Newly Industrialized World," LEM Papers Series 2016/01, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    22. Eric Rougier & Riana Razafimandimby Andrianjaka, 2017. "What difference does it make (when a middle-income country is caught in the trap)? An evidence-based survey analysis of the determinants of Middle-Income Traps," Cahiers du GREThA 2017-16, Groupe de Recherche en Economie Théorique et Appliquée.
    23. Seim, Anna Larsson & Parente, Stephen L., 2013. "Democracy as a middle ground: A unified theory of development and political regimes," European Economic Review, Elsevier, vol. 64(C), pages 35-56.

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    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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