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Do democracies have higher current account deficits?

Author

Listed:
  • Antonis Adam

    () (University of Ioannina)

  • Sofia Tsarsitalidou

    () (University of Ioannina)

Abstract

Abstract In this paper we argue that democracies tend to run (larger) current account deficits than autocracies. Our argument is based on the different incentives faced by democratic and autocratic leaders. The main theoretical hypothesis is tested on a dataset of 121 countries over the period 1980–2012, using 5 year averages and a fixed effects panel data model. Special focus is given on the issue of endogeneity by estimating an IV Fixed Effects model. Relying on the idea of the regional waves of democratization and the special role of the Christian Church on the third wave of democratization, we use as instruments of Democracy the level of democracy in neighboring countries and also the share of Christian adherents in each country. Both instruments turn out to be valid determinants of democracy. The empirical findings suggest that autocracies run lower current account deficits than democracies. These results are found to be robust across alternative empirical specifications.

Suggested Citation

  • Antonis Adam & Sofia Tsarsitalidou, 2018. "Do democracies have higher current account deficits?," Constitutional Political Economy, Springer, vol. 29(1), pages 40-68, March.
  • Handle: RePEc:kap:copoec:v:29:y:2018:i:1:d:10.1007_s10602-017-9255-9
    DOI: 10.1007/s10602-017-9255-9
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    More about this item

    Keywords

    Current account; Democracy; Autocracy;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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