Do Democratic
Transition Produce Bad
Economic Outcomes?
BY: DANI RODRIK AND ROMAIN WACZIARG, 2005
Outline:
Outline
1. Introduction
2. Methodology and Data
3. Results
4. Conclusions
5. Discussions
Introduction
•Several influential commentators have suggested that
democratization in developing countries produces bad outcomes.
•Other papers give examples of democratic reforms that led to
economic chaos and eventually a collapse back into autocracy.
•Purpose of this paper: to prove that democratic transitions will lead
to economic growth in most of the countries.
Methodology
1. Shortcoming of cross-national regression techniques: only
addresses long-run relationships, did not answer what happens
during the transitions to democracy.
2.
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Methodology of this paper:
examine the within-country effect
Include time and country fixed effect
Control for other types of regime transitions
Samples:154 countries
Results summary:
1.Short-run effects of the
democratic transitions seem
to be positive although not
significant
2.Surprising finding:
Transition to autocracy is
also associated with higher
growth. Why?
Hypotheses: Democratic transitions are highly
risky in low-income settings with poor
institutions and ethnic divisions. [argument of
Kaplan (2000) and others]
Results summary:
1.Find no evidence that democratization
wreaks economic chaos in poor ethnically
diverse, African countries.
2.These countries seems to experience a
short-term growth.
Narrow down to 24 examples:
1.24 counties fit the criteria
which only regime change was
major democratization.
(transition not reversed into
autocracy)
2.In order to examine
differences between countries
around the large sample
means.
African countries
Per Capital Income:
1. Benin: growth rose from 0.28 percent
before 1991 to 1.45 percent.
2. Madagascar: from -1.87 percent
before1991 to -0.75 percent.
3. Mali: rose from -2.24 percent before 1991
to 2.5 percent.
Typical path of growth
Results:
1.Democratizations tend to follow rather
than precede declines in growth.
2.No significant growth in the five years
immediately following democratization.
3.The standard deviation of growth falls
after democratization. (less volatility)
4.Growth falls rapidly in the 4th year after
democratization. Why?
Differences of Country Experiences with
Democratization
1. Range from a 7.19% drop in growth rate (Ecuador) to 4.75% growth (Mali).
There must be others factors besides democratization.
2. Among 24 examples, 12 countries experiencing growth, 12 countries
experiencing reduced growth.
3. All the 12 countries that underwent growth decline are Latin American
countries and European countries.
4. All 12 countries that underwent growth are Asian and African countries.
Conclusion
1. Claims that democratization leads to poor economic outcomes
are often used to justify autocracy in poor countries. (not “mature
enough” for democracy)
2. Democracy leads to wealthy, not the other way around.
3. Democratization generally do not bring economic collapse,
instead it would be likely to bring short term economic boost and
less economic volatility.
Discussion
Other interesting papers
about this topic:
1.Przeworski&Limongi(1993)
•This paper reviewed 18 papers and their
conclusions.
•8 found positive correlation between
democratization and economic growth, 8
found negative correlation, 5 found no
correlation.
•Papers that published after 1988: none
of them conclude a positive correlation
between autocracy and growth
2. Acemoglu, D. (2008). “Oligarchic Versus Democratic Societies”
•A possible path of development for an oligarchic society is to first rise and then
fall relative to a more democratic society.
•Oligarchic first generates greater efficiency because of comparative advantage
•However, as time goes by comparative advantage shifts away and allocation of
recourses worsen.
•In democracy society, taxation creates distortion at first but do not worsen over
time.