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Should market liberalisation precede democracy? Causal relations between political preferences and development

  • Pauline Grosjean

    (European Bank for Reconstruction and Development)

  • Claudia Senik

    (Paris School of Economics)

This paper is dedicated to the relationship between market development and democracy. We distinguish between contexts and preferences and ask whether it is true that the demand for democracy only emerges after a certain degree of market development is reached, and whether, conversely, democratisation is likely to be an obstacle to the acceptance of market liberalisation. Our study hinges on a new survey rich in attitudinal variables: the Life in Transition Survey (LITS) conducted in 2006 by the European Bank for Reconstruction and Development (EBRD) and the World Bank, in 28 transition countries. Our identification strategy consists of relying on the specific situation of frontier zones. We find that democracy enhances the support for market development whereas the reverse is not true. Hence, the relativist argument according to which the preference for democracy is an endogenous by-product of market development is not supported by our data.

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Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 103.

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Length: 40 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:ebd:wpaper:103
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  2. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
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  9. Persson, Torsten & Tabellini, Guido, 2007. "The Growth Effect of Democracy: Is It Heterogeneous and How Can It Be Estimated?," CEPR Discussion Papers 6339, C.E.P.R. Discussion Papers.
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  13. G�rard Roland, 2002. "The Political Economy of Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 29-50, Winter.
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  16. Torsten Persson & Guido Tabellini, 2006. "Democracy and Development: The Devil in the Details," American Economic Review, American Economic Association, vol. 96(2), pages 319-324, May.
  17. Dewatripont, M & Roland, G, 1992. "The Virtues of Gradualism and Legitimacy in the Transition to a Market Economy," Economic Journal, Royal Economic Society, vol. 102(411), pages 291-300, March.
  18. Lutkepohl, Helmut, 1982. "Non-causality due to omitted variables," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 367-378, August.
  19. Simeon Djankov & Caroline Freund, 1998. "Disintegration," International Finance Discussion Papers 618, Board of Governors of the Federal Reserve System (U.S.).
  20. John F. Helliwell, 1992. "Empirical Linkages Between Democracy and Economic Growth," NBER Working Papers 4066, National Bureau of Economic Research, Inc.
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