Do Good Institutions Lower the Benefit of Democratization?


Discussion Paper 2010-08
JEL Classification: O40, O55


Recent studies have reported positive associations between democratization and economic growth. They have also explored how these associations could differ across regions. However, might the effects of democratization upon growth also depend upon other factors such as institutions promoting law and order (or the lack thereof)? Using a panel specification, we employ a democratization-law and order interactive term to examine if the effects of democratization upon economic growth depend upon these other institutions. We find that the coefficient on the interaction term is negative. The positive effects of democratization diminish in countries where other institutions are strong. In fact, we find that democratization could even lower growth where the rule of law already prevails.

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