DP16587 Democracy Doesn't Always Happen Over Night: Regime Change in Stages and Economic Growth

Author(s): Vanessa Boese, Markus Eberhardt
Publication Date: September 2021
Keyword(s): democracy, Difference-in-difference, growth, Interactive Fixed Effects, Political development
JEL(s): O10, P16
Programme Areas: Macroeconomics and Growth, Political Economy
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16587

How substantial are the economic benefits from democratic regime change? We argue that democratisation is not a discrete event but a two-stage process: autocracies first enter into 'episodes' of political liberalization; in the second stage, these episodes either culminate in regime change or not. Failure to account for this chronology and the implicit counterfactual groups risks biased estimates due to selection effects. Adopting a repeated-treatment difference-in-difference implementation, which captures non-parallel trends and selection into treatment, we find that a single event approach substantially underestimates the economic dividends from regime change and, crucially, obscures the permanent growth effect of democratisation.