Business Intelligence

Democracy And Growth Volatility: Exploring The Links

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Executive Summary

The authors study the volatility of growth rates and find that it differs systematically across countries. This empirical investigation reveals that there is a high correlation between disparity in political regimes across countries and differences in volatility. This is not the case for some of the commonly cited reasons like initial income, inequality or instability of regimes. They find that less democratic countries are more volatile. To explain this observation they use a dynamic model in which democracy is parameterized by the fraction of people who benefit from being in power.

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