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Democracy, Diversification and Growth Reversals

Author

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  • David Cuberes
  • Michał Jerzmanowski
Abstract
There is much evidence that less democratic countries experience more high‐frequency growth volatility. In this article we report a similar finding about volatility in the medium term: we find evidence that reversals of trend‐growth are sharper and more frequent in non‐democracies. Motivated by this evidence, we construct a model in which non‐democracies have high barriers to entry for new firms. This leads to less sectoral diversification and so, in an uncertain environment, to larger growth swings in less democratic countries. We present empirical evidence that confirms the positive relation between democracy and industrial diversification.

Suggested Citation

  • David Cuberes & Michał Jerzmanowski, 2009. "Democracy, Diversification and Growth Reversals," Economic Journal, Royal Economic Society, vol. 119(540), pages 1270-1302, October.
    • Handle: RePEc:wly:econjl:v:119:y:2009:i:540:p:1270-1302
    DOI: 10.1111/j.1468-0297.2009.02287.x
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    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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