Normal view MARC view

Democracy and policy stability

Author: Dutt, Pushan ; Mobarak, Ahmed MushfiqINSEAD Area: Economics and Political Science Series: Working Paper ; 2007/50/EPS Publisher: Fontainebleau : INSEAD, 2007.Language: EnglishDescription: 55 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: The strong negative link between democracy and output volatility documented by Rodrik (2000) and others stands in sharp contrast to the lack of consensus on the democracy-growth relationship. To explain stable growth performance in democracies we characterize political systems in terms of the distribution of political power across groups, and show that in a world where the qualities of available policy alternatives are uncertain, greater democracy (i.e. decentralization of decision-making authority) leads to more stable policy choices. We design an empirical test of this mechanism by creating measures of the inter-temporal variability in fiscal and trade policies for a panel dataset of 92 countries. In an array of specifications (cross-sectional and panel OLS, fixed effects, random effects, instrumental variables), under 5 different measures of democracy and using sharp episodes of democratizations in a difference in difference, we show that policy choices are significantly more stable over time in democracies. This mechanism explains a large part of the negative link between democracy and output volatility.
Tags: No tags from this library for this title. Log in to add tags.
Item type Current location Collection Call number Status Date due Barcode Item holds
INSEAD Working Paper Digital Library
PDF Available BC007997
Total holds: 0

The strong negative link between democracy and output volatility documented by Rodrik (2000) and others stands in sharp contrast to the lack of consensus on the democracy-growth relationship. To explain stable growth performance in democracies we characterize political systems in terms of the distribution of political power across groups, and show that in a world where the qualities of available policy alternatives are uncertain, greater democracy (i.e. decentralization of decision-making authority) leads to more stable policy choices. We design an empirical test of this mechanism by creating measures of the inter-temporal variability in fiscal and trade policies for a panel dataset of 92 countries. In an array of specifications (cross-sectional and panel OLS, fixed effects, random effects, instrumental variables), under 5 different measures of democracy and using sharp episodes of democratizations in a difference in difference, we show that policy choices are significantly more stable over time in democracies. This mechanism explains a large part of the negative link between democracy and output volatility.

Digitized

There are no comments for this item.

Log in to your account to post a comment.
Koha 18.11 - INSEAD Catalogue
Home | Contact Us | What's Koha?