Democracy,regulation and competition in emerging banking systems

This paper develops a political economy framework to analyse the relations among democracy, financial regulation and banking competition in the emerging banking systems of Central and Eastern Europe. We develop extensive new yearly non-structural indices of bank competition instead of concentration indices as in the previous literature that show its evolution over time with the level of democracy. In addition, we directly test for linkages between democracy, financial regulation and banking competition. Using an unbalanced panel data set over the period 1994–2016 for 617 banks, we show that more democratic countries with better regulatory framework lead to the enhancement of competition. We also find significant support for the core hypothesis that financial regulatory framework in a “partially” democratic environment is inadequate. Given that financial regulatory framework in a “partially” democratic environment can be inadequate we find a U-shaped relation in the sense that there is a threshold level of democracy beyond which banking systems in those countries are more competitive.     

DEMOCRATIC AID AND THE DEMOCRATIZATION OF RECIPIENTS

We investigate whether democratic aid flows, which are directed toward the democratization of recipients by covering democracy‐related programs and government and civil society activities, affect the future political regime of recipient countries. We introduce a multinomial multivariate logit model and we use 5‐yr averaged data covering the period 1972–2004 for 59 democracy aid‐recipient countries categorized into three broad classes according to the prevalent political regime. We find strong evidence that democratic aid flows are positively associated with the likelihood of observing a partly democratic or a fully democratic political regime in democratic aid‐recipient countries and that this result is robust to the potential endogeneity of democratic assistance.(JEL D70, F35, C25)     

The democratization process: An empirical appraisal of the role of political protest

This paper analyses the role of peaceful and violent protest in the democratization process. We interpret the democratization process as a sequence of phases so as to allow citizens' and elites' preferences for democracy to vary according to the particular phase that a country is experiencing. By doing so we jointly model the probability of protest and of moving through different phases of democracy taking into account time-constant and time-varying unobserved heterogeneity. In particular, we develop a multivariate finite mixture model that introduces a latent variable to capture unobservable factors. On a sample of 171 countries from 1971 to 2010, we provide evidence that protest matters in all phases of democratization, especially peaceful citizens’ demonstrations. On the contrary, violent protest has ambiguous consequences, as it favours initial democratic transitions but at the cost of threatening democratic consolidation. We also find that, after conditioning for economic and institutional controls, there is evidence of time-varying unobserved heterogeneity.     

Does Democracy Lead to a Better Environment? Deforestation and the Democratic Transition Peak

The relationship between democracy and environment is subject to controversy. Some scientists find that democracy has a positive impact in reducing environmental disruption. Other scholars claim that democracy tends to accelerate environmental degradation. By using deforestation rates as a proxy for environmental disruption, we suggest that both sides might be right. Our quantitative analysis has three important outcomes. First, there is evidence of an inverted U-shaped relationship between deforestation and democracy. Second, countries in democratic transition experience the highest deforestation rates, compared to non-democracies and mature democracies. Third, in explaining deforestation rates democracy has larger explanatory power than income. This last result implies that in reducing deforestation rates the emphasis should not only be on economic development but even more on democratization.     

Testing the neocon agenda: Democracy in resource-rich societies

Resource-rich countries have tended to be autocratic and also have tended to use their resource wealth badly. The neoconservative agenda of promoting democratization in resource-rich countries thus offers the hopeful prospect of a better use of their economic opportunities. This paper examines whether the effect of democracy on economic performance is distinctive in resource-rich societies. We show that a priori the sign of the effect is ambiguous: Resource rents could either enhance or undermine the economic consequences of democracy. We therefore investigate the issue empirically. We first build a new dataset on country-specific resource rents, annually for the period 1970-2001. Using a global panel dataset, we find that in developing countries the combination of high natural resource rents and open democratic systems has been growth-reducing. Checks and balances offset this adverse effect. Thus, resource-rich economies need a distinctive form of democracy with particularly strong checks and balances. Unfortunately, this is rare: Checks and balances are public goods and so are liable to be undersupplied in new democracies. Over time they are eroded by resource rents.     

The effect of remittances on democratic institutions

Do remittances promote stronger democratic institutions in developing countries? We study the effect of workers’ remittances on the quality of democracy in developing countries, and examine how government spending mediates the effect of workers’ remittances on the quality of democratic institutions. Using a dynamic panel estimator on data from 133 developing countries over 1972–2012, we find that workers’ remittances improve the quality of democratic institutions. We also find that workers’ remittances are more effective in promoting democratic institutions in developing countries with low government spending.     

Democracy-growth nexus and its interaction effect on human development: A cross-national analysis

This paper examines the democracy-growth nexus and its interactive effect on human development by using cross-national panel data spanning over 20 years incorporating the effect of democratization process. We find evidence that the effect from democracy to human development is nonlinear and varies depending on the levels of growth and democracy. The results confirm that the interaction effect of democracy-growth nexus has a positive impact on human development but the effect is sensitive to democratization process and the level of a country's economic development. It is established that democracy is more crucial in developed countries, whereas economic growth is vital in developing countries. The findings imply that the role of democracy in enhancing human development should not be overemphasized as economic growth is vital in the developing countries.     

Baltic Dry Index and the democratic window of opportunity

In their seminal paper, Brückner and Ciccone (2011) document that a significant effect of democratic change may be triggered by negative transitory economic shocks, and that rainfall can open a democratic window of opportunity in sub-Saharan Africa (SSA). As a complement, this paper uses within-country variation in the Baltic Dry Index (BDI) as a source of transitory negative income shocks to SSA countries. The BDI reflects the cost of utilizing dry bulk carriers, which are specially designed vessels for transporting primary goods internationally, where these goods dominate the output and export sectors of the SSA economies. We find that positive BDI cost shocks are followed by significant contraction in income through trade channel and significant improvement in democratic institutions, where BDI can open a window of opportunity for democratic improvement. Instrumental variables estimates indicate that following a negative income shock of one percentage point, democracy scores improve by around 4–5 percentage points on average.     

Democratization is the driving force for technological and economic change

The purpose of this paper is to analyze the relationship between democratization and technological innovation. In primis, the paper shows, through economic history, that democratization is an antecedent process (cause) to technological and economic change (effect). In particular, the primary finding is that democratization is a driving force for technological change: most free countries, measured with liberal, participatory, and constitutional democracy indices, have a higher level of technology than less free and more autocratic countries. In fact, “democracy richness” generates a higher rate of technological innovation with fruitful effects for the wellbeing and wealth of nations. These findings and predictions lead to the conclusion that policy makers need to be cognizant of positive associations between democratization and technological innovation paths in order to support the modern economic growth and future technological progress of countries.     

Do democracies have higher current account deficits?

In this paper we argue that democracies tend to run (larger) current account deficits than autocracies. Our argument is based on the different incentives faced by democratic and autocratic leaders. The main theoretical hypothesis is tested on a dataset of 121 countries over the period 1980–2012, using 5 year averages and a fixed effects panel data model. Special focus is given on the issue of endogeneity by estimating an IV Fixed Effects model. Relying on the idea of the regional waves of democratization and the special role of the Christian Church on the third wave of democratization, we use as instruments of Democracy the level of democracy in neighboring countries and also the share of Christian adherents in each country. Both instruments turn out to be valid determinants of democracy. The empirical findings suggest that autocracies run lower current account deficits than democracies. These results are found to be robust across alternative empirical specifications.     

Democracy in the neighborhood and foreign direct investment

The determinants of foreign direct investment (FDI) have been extensively studied. Even though there is extensive research in the area, most of it is based on analyzing the effects of host country characteristics on FDI flows, and yet there is little research on how neighboring country characteristics play a role in facilitating FDI flows to host countries. This paper analyzes the association between the democracy level in neighboring countries and FDI flows to host countries. Using bilateral FDI flows from the OECD countries, with a large host country sample, we find that countries surrounded by democratic countries attract higher FDI flows. Furthermore, we find evidence that countries that are surrounded by neighboring countries with good institutions tend themselves to have better institutions, experience lower civil conflict, and have higher political stability and hence indirectly attract higher FDI flows. Our findings suggest that if neighboring countries act in such way as to become more democratic, FDI flows to these countries would be higher since not only does improving the quality of democracy attract more FDI inflows, but also being surrounded by neighboring advanced democratic countries will also lead to higher FDI flows to them.     

危机损失、经济复苏与金融结构比较——什么样的金融体系更能摆脱危机

本文从比较分析视角出发,研究在应对金融危机的过程中,不同的金融结构对经济增长的作用。我们利用57个国家从1960到2009年的面板数据检验了金融结构、金融发展水平与经济增长之间的相互联系。研究结果表明,只有当金融发展水平较高的经济体选择市场导向的金融结构时,才能降低金融危机的损失,提高经济复苏速度,而金融发展水平较低的经济体的最佳选择则是银行导向的金融结构。最后,本文结合中国的现实情况提出了相关的政策建议。     

Birds of a feather: Evidence on commonality of corruption and democracy in the origin and location of foreign investment in Russian regions

We examine the effects of subnational variations in corruption and democratization on the location decisions of foreign investors in Russian regions using firm-level panel data for the period 1996–2007. We link these effects to the level of corruption and type of political regime in the country of origin of a foreign investor. We find a relationship between attributes of foreign investors' home countries and attributes of the regions in which investment takes place: foreign investors from less corrupt and democratic countries tend to invest in less corrupt and more democratic Russian regions, whereas those from more corrupt and non-democratic countries tend to invest in more corrupt and less democratic regions. An inference is that, in Russian regions with high corruption and with autocratic government, foreign direct investment appears driven by the personal interests of controlling regional political elites who collaborate for mutual gain with foreign investors from corrupt and autocratic countries. Our results suggest a general conclusion that origin and location of foreign investment are linked by common political culture.     

Trade uncertainty,income, and democracy

Existing studies establish a strong correlation between income and democracy. Little, however, is known about whether income shocks driven by non-economic fundamentals matter for political transitions. This study employs trade uncertainty as a non-economic fundamental and examines the effect that trade uncertainty driven income variations have on democratic transitions over the period 1960–2013. We find that higher income fosters democratic transitions, but this effect works mainly for developing than developed countries. Specifically, using trade uncertainty as an instrument, we find that the Polity2 score, a measure of democracy, increases by at least 2.3 points following a 1 percentage point increase in GDP growth. This positive association is robust to exploiting conditional heteroskedasticity for identification, using different time periods, including lagged Polity2 as a regressor, and using alternative measures of GDP and democracy.     

Democracy,rent seeking,public spending and growth

Does democratization imply faster growth, less corruption and less inefficiency? Past studies yield ambiguous results on the effects of democracy on economic performance and growth. We develop a simple two-sector endogenous growth model that shows both very young and mature democracies grow faster than countries in mid stages of democratization, producing a ‘U’ effect. This effect results from the pattern of rent seeking as it diverts from the provision of public goods. Rent-seekers act as monopolistic competitors. Initially, more democracy increases their number, raising aggregate rents. However, rents per rent-seeker fall with the number of rent seekers. Due to this crowding effect and the increased competition among rent seekers, aggregate rents fall in mature democracies. Thus, rents show an ‘inverted-U’ effect in relation to democracy. We find fairly robust supportive evidence for the latter.     

Does democracy affect taxation and government spending? Evidence from developing countries

Focusing on developing countries in three geographical areas (South-East Asia, Latin America and European Union), we explore the relation between political variables and tax revenue, public spending and their structure. We build a new dataset for the 1990–2005 period with fiscal, political and socio-economic variables. Since democracy is a complex and multidimensional concept, we measure it using two variables, the political strength of democratic institutions, and the protection of civil liberties. We perform three sets of estimates: (i) cross-country pooled OLS regressions with region fixed effects, (ii) country fixed effects regressions and (iii) region specific regressions with country fixed effects. While the first model delivers some significant correlations between political variables and tax items, when controlling for country fixed effects we find that tax revenue and tax composition are in general not significantly correlated with the strength of democratic institutions and the protection of civil liberties. The only exceptions are indirect, trade and property taxes. A similar result applies to public spending, with the exception of defense expenditure. Overall, our findings cast some doubt on the exact public policy channels through which political institutions affect economic development.     

Preaching democracy: The second Vatican council and the third wave

We use variation in religious doctrine produced by the unexpected Second Vatican Council (1962–65) to investigate the impact of religion on democratization. The Council, which transformed the Catholic Church from defender of the ancien régime into a leading apostle of religious freedom, human rights and democracy, represents the most significant example of institutionalized religious change since the Protestant Reformation. We adopt a difference-in-difference approach to estimate the Council's impact on democracy. Furthermore, we provide historical narratives on how the post-conciliar Catholic Church influenced the democratization process in different national contexts. Our research substantiates that the Church played a decisive role in third wave democratization.     

Comparing the spread of capitalism and democracy

We apply Leeson and Dean’s (2009) method for studying democratic dominoes to capitalist spillovers to compare the rates at which capitalism and democracy spread between countries. We find that capitalism and democracy spread at approximately the same modest rate.     

法学与政治：内生民主化

作者指出，经济发展增加了一国发生民主化转变的可能性。他们的这一结论与Przeworski及其合作者的观点相抵触，后者认为，发展只能起到维持既存民主的作用，而无法促成民主化转变的发生。通过全面地处理样本选择及模型规范方面的问题，作者发现，经济增长的确导致了非民主国家向民主化方向转变的发生。他们指出，在十九世纪中叶到二战前这百余年时间里，经济增长对于民主化转变发生可能性的影响十分明显，甚至比它在维持民主稳定方面的作用更加显著。同时，他们指出，在未来的几十年里，一些取得了一定程度的经济发展但仍由独裁政权统治的国家，发生民主化的几率会随着它们的经济发展水平的提高而提高。例如，当一国人均收入达12000美元时，该国有望最快在三年之内实现民主化。     

Economic Growth, Inequality, Democratization, and the Environment

We augment the Stokey (1998) model by allowingagents to differ with respect to environmentalquality and income in order to analyze theimpact of income and environmental inequality,and of democratization on aggregate pollution.We find that the impact of a more equal incomedistribution depends on the degree ofdemocracy. In a complete democracy a more equalincome distribution generates, ceterisparibus, less pollution, which is consistentwith indirect empirical evidence, whereas theopposite is the case if democratic rights arehighly restricted. Furthermore, ademocratization is argued to typically lowerboth the income and the environmental qualityof the median voter. In this case, if, inutility terms, the fall in environmentalquality is worse than the fall in consumptionthe median voter decides to tightenenvironmental legislation so that aggregatepollution decreases.