DOES DEMOCRATIZATION AFFECT GROWTH ACROSS TIME OR SPACE?

Author

Andreas Andonis Assiotis, Southern Illinois University CarbondaleFollow

Date of Award

5-1-2011

Degree Name

Doctor of Philosophy

Department

Economics

First Advisor

Assiotis, Andreas

Abstract

One research path has been to see whether the type of political regime, namely a democratic versus an authoritarian regime, influences economic growth. Much of the past literature has produced ambiguous results. But more recent studies using more sophisticated statistical techniques have often shown a positive effect of democratization upon economic growth. These studies have made welcome contributions. However, they often fail to examine how the effects of democratization could differ across countries or over time. In my dissertation, I will look more closely at how the effects of democratization could differ depending upon country characteristics - corruption and adherence to rule of law - or when democratization occurs. Chapter 1 investigates whether the association between corruption and economic growth differs between democracies and authoritarian regimes. Consider illegal corruption and legal lobbying, both forms of rent seeking, as imperfect substitutes. Suppose lobbying is easier to do in democracies. Then, lowering corruption in authoritarian regimes could have greater growth benefits because of the lower substitutability between corruption and lobbying in these countries. Using cross-country, annual data from 1984 to 2007, we regress economic growth on: the control of corruption, the degree of democracy, and an interaction term combining the two. We find that coefficients are positive on the first two variables. However, the coefficient on the interactive term is negative, suggesting that the benefits upon growth of controlling corruption are actually greater in authoritarian regimes. Chapter 2 examines both short and long-run effects of democratization upon economic growth and measures the extent they differ. For example, democratization could initially lower economic growth due to transitional costs. Effects could then turn positive as democratic reforms take hold and provide greater freedoms to the populace. But over time, greater amounts of rent seeking could occur and so diminish benefits of democratization. Or, do other patterns rise? Utilizing difference-in-difference estimations and controlling for time and country specific fixed effects, we analyze a panel data sample of 174 countries from 1960 to 2003. Our results show that democratizations are not associated with high transitional costs. Instead, we find that democratization enhances long-run growth more in Sub-Saharan Africa than in other regions. Finally, we find evidence that the effects of democratization upon growth differ between partial and full democratization episodes. Chapter 3 considers whether or not democratization improves institutions that have so often been argued to increase economic growth. Utilizing a panel dataset from 1984 to 2007 for 127 countries, we examine whether democratization promotes the rule of law. We generally find a positive influence from democratization upon the rule of law although effects are strongest for sub-Saharan Africa.