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American Economic Journal: Macroeconomics: Vol. 1 No. 2 (July 2009)

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Democratic Capital: The Nexus of Political and Economic Change

Article Citation

Persson, Torsten, and Guido Tabellini. 2009. "Democratic Capital: The Nexus of Political and Economic Change." American Economic Journal: Macroeconomics, 1(2): 88-126.

DOI: 10.1257/mac.1.2.88

Abstract

We study the dynamics of economic and political change, theoretically and empirically. Democratic capital measured by a nation's historical experience with democracy, and the incidence of democracy in its neighborhood, appears to reduce exit rates from democracy and raise exit rates from autocracy. Higher democratic capital stimulates growth by increasing the stability of democracies. Heterogeneous effects of democracy induce sorting of countries into political regimes, which helps explain systematic differences between democracies and autocracies. Our results suggest the possibility of a virtuous circle, where accumulation of physical and democratic capital reinforce each other, promoting economic development and consolidation of democracy. (JEL D72, I31, N10, N40, O47)

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Authors

Persson, Torsten (IIES, Stockholm U and London School of Economics)
Tabellini, Guido (IGIER, U Bocconi and CESifo, Munich)

JEL Classifications

D72: Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
O47: Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
I31: General Welfare
N10: Economic History: Macroeconomics and Monetary Economics; Growth and Fluctuations: General, International, or Comparative
N40: Economic History: Government, War, Law, and Regulation: General, International, or Comparative

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