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The Effect of Elections on Economic Growth: Results from a Natural Experiment in Indonesia

Does democracy increase economic growth? Previous literature tends to find a positive effect but does also suffer from possible endogeneity problems: democratization is typically not random and might be affected by factors that also have an impact on economic growth. This paper narrows down the question to empirically estimating the causal effect of local elections on local economic growth in Indonesia by using a quasi-experimental research method. The first direct elections of district leaders in Indonesia were performed in a staggered manner, and decided such that the year of election is exogenous. Thus, growth in districts that have had their first elections of district heads can be compared with growth in districts that have not had a direct election, which more specifically is performed by using a difference-in-difference approach. Our estimations show no general effect of local elections on economic growth. The result is robust to various robustness tests and is supported by data that show small effects of elections on governance.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 1023.

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Length: 51 pages
Date of creation: 08 May 2014
Date of revision:
Handle: RePEc:hhs:iuiwop:1023
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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  1. Andrew Beath & Fotini Christia & Ruben Enikolopov, 2013. "Direct Democracy and Resource Allocation: Experimental Evidence from Afghanistan," Working Papers w0192, Center for Economic and Financial Research (CEFIR).
  2. Fitria Fitrani & Bert Hofman & Kai Kaiser, 2005. "Unity in diversity? The creation of new local governments in a decentralising Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 41(1), pages 57-79.
  3. Robin Burgess & Matthew Hansen & Benjamin Olken & Peter Potapov & Stefanie Sieber, 2012. "The Political Economy of Deforestation in the Tropics," Working Papers id:4963, eSocialSciences.
  4. Bambang Suharnoko Sjahrir & Krisztina Kis-Katos & Guenther G. Schulze, 2013. "Political Business Cycles in Local Indonesia," Discussion Paper Series 23, Department of International Economic Policy, University of Freiburg, revised Apr 2013.
  5. Persson, Torsten & Tabellini, Guido, 2006. "Democracy and Development: The Devil in the Details," CEPR Discussion Papers 5499, C.E.P.R. Discussion Papers.
  6. Barro, Robert J, 1996. " Democracy and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 1-27, March.
  7. Chenggang Xu, 2011. "The Fundamental Institutions of China's Reforms and Development," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 1076-1151, December.
  8. Martinez-Bravo, Monica & Padro, Gerard & Qian, Nancy & Yao, Yang, 2012. "The Effects of Democratization on Public Goods and Redistribution: Evidence from China," CEPR Discussion Papers 8975, C.E.P.R. Discussion Papers.
  9. Daron Acemoglu & Suresh Naidu & Pascual Restrepo & James A. Robinson, 2014. "Democracy Does Cause Growth," NBER Working Papers 20004, National Bureau of Economic Research, Inc.
  10. Monica Martinez-Bravo, 2014. "The Role of Local Officials in New Democracies: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 104(4), pages 1244-87, April.
  11. Skoufias, Emmanuel & Narayan, Ambar & Dasgupta, Basab & Kaiser, Kai, 2011. "Electoral accountability, fiscal decentralization and service delivery in Indonesia," Policy Research Working Paper Series 5614, The World Bank.
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