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

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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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  • Moricz, Sara & Sjöholm, Fredrik, 2014. "The Effect of Elections on Economic Growth: Results from a Natural Experiment in Indonesia," Working Paper Series 1023, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:1023
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    1. 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 1244-1287, April.
    2. 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.
    3. 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.
    4. Barro, Robert J, 1996. "Democracy and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 1-27, March.
    5. Robin Burgess & Matthew Hansen & Benjamin A. Olken & Peter Potapov & Stefanie Sieber, 2012. "The Political Economy of Deforestation in the Tropics," The Quarterly Journal of Economics, Oxford University Press, vol. 127(4), pages 1707-1754.
    6. Beath, Andrew & Christia, Fotini & Enikolopov, Ruben, 2017. "Direct democracy and resource allocation: Experimental evidence from Afghanistan," Journal of Development Economics, Elsevier, vol. 124(C), pages 199-213.
    7. 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.
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    9. Björn Tyrefors Hinnerich & Per Pettersson‐Lidbom, 2014. "Democracy, Redistribution, and Political Participation: Evidence From Sweden 1919–1938," Econometrica, Econometric Society, vol. 82(3), pages 961-993, May.
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    11. 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.
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    Cited by:

    1. Valsecchi, Michele, 2016. "Corrupt Bureaucrats: The Response of Non-Elected Officials to Electoral Accountability," Working Papers in Economics 684, University of Gothenburg, Department of Economics.

    More about this item

    Keywords

    Democracy; Elections; Growth; Indonesia; Natural experiment;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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