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Does democracy lower growth volatility? A dynamic panel analysis


  • Yang, Benhua


This paper employs dynamic panel generalized method of moment (GMM) technique to empirically examine the causal relationship between democracy and growth volatility for a sample of 138 countries over the 1968-2002 period. Improving upon the methodology of earlier papers, this study finds that the causal effects of democracy on volatility are not highly robust as previously suggested. Instead, the results of this paper indicate that the democracy-volatility relationship may depend on the ethnic structure of a society. In countries with high degrees of ethnic heterogeneity, democracy appears to significantly reduce growth volatility; in countries with low degrees of ethnic diversity such a relationship is not significant.

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  • Yang, Benhua, 2008. "Does democracy lower growth volatility? A dynamic panel analysis," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 562-574, March.
  • Handle: RePEc:eee:jmacro:v:30:y:2008:i:1:p:562-574

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    References listed on IDEAS

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    Cited by:

    1. Lucotte, Yannick, 2010. "The choice of adopting inflation targeting in emerging economies: Do domestic institutions matter?," MPRA Paper 27118, University Library of Munich, Germany.
    2. Christian Ebeke & Jean-Louis Combes, 2013. "Do remittances dampen the effect of natural disasters on output growth volatility in developing countries?," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2241-2254, June.
    3. Zuazu Bermejo, Izaskun, 2015. "Political Institutions, Technology and Growth: a dynamic panel approach," IKERLANAK Ikerlanak;2015-94, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    4. Barbara Meller, 2013. "The two-sided effect of financial globalization on output volatility," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(3), pages 477-504, September.
    5. Yannick LUCOTTE, 2010. "The Choice of Adopting Inflation Targeting in Emerging Economies: Do Domestic Institutions Matter?," LEO Working Papers / DR LEO 1561, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    6. Tedesco, Ilaria & Pelloni, Alessandra & Trovato, Giovanni, 0. "Oecd Agricultural Subsidies And Poverty Rates In Lower Income Countries," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 3.
    7. Sugata Ghosh & Andros Gregoriou & Anirban Mitra, 2013. "On the Role of Democracy in the Ethnicity-Growth Relationship: Theory and Evidence," CEDI Discussion Paper Series 13-02, Centre for Economic Development and Institutions(CEDI), Brunel University.
    8. Combes, Jean-Louis & Ebeke, Christian, 2011. "Remittances and Household Consumption Instability in Developing Countries," World Development, Elsevier, vol. 39(7), pages 1076-1089, July.
    9. Kangoye, Thierry, 2011. "Does Foreign Aid Promote Democracy?," WIDER Working Paper Series 064, World Institute for Development Economic Research (UNU-WIDER).
    10. Yang, Benhua, 2011. "Political democratization, economic liberalization, and growth volatility," Journal of Comparative Economics, Elsevier, vol. 39(2), pages 245-259, June.
    11. Andrew Williams, 2014. "The effect of transparency on output volatility," Economics of Governance, Springer, vol. 15(2), pages 101-129, May.
    12. Sato, Masayuki & Samreth, Sovannroeun & Sasaki, Kengo, 2013. "The Stability of Sustainable Development Path and Institutions: Evidence from Genuine Savings Indicators," MPRA Paper 48983, University Library of Munich, Germany.
    13. Klomp, Jeroen & de Haan, Jakob, 2009. "Political institutions and economic volatility," European Journal of Political Economy, Elsevier, vol. 25(3), pages 311-326, September.

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