Democracy Versus Dictatorship? the Political Determinants of Growth Episodes

Abstract: Economic growth in developing countries is characterized by ‘boom and bust’ growth and frequent shifts in growth regimes from stagnant or declining growth to accelerations in growth and back again to decelerating growth. We examine the political determinants of the magnitudes of growth accelerations and decelerations. We hypothesise that ‘ordered’ political institutions, where constraints exist on the discretion of the executive (whether in authoritarian or democratic regimes) are more likely to lead to a greater magnitude of growth during an acceleration, and/or minimise the fall in output during a deceleration. In contrast, more open political institutions (where executive recruitment is open and inclusive, as in a democracy) do not have a discernible effect on the magnitudes of growth accelerations and decelerations, though they may contribute to prolonging positive growth episodes. Our findings suggest that while much of the previous literature on the role of political institutions in economic growth has focused on the effects of democracy versus dictatorship, the key element of political institutions that is relevant for understanding ‘boom and bust’ growth is the predictability of these institutions, rather than their open-ness.