Working Papers, Department of Economics, Lund University
The Effect of Elections on Economic Growth: Results from a Natural Experiment in Indonesia
() and Fredrik Sjöholm
Abstract: Does democracy increase economic growth? Previous
literature tends to find a positive effect but does also suffer from
possible endogeneity problems: democratization is typically not random and
might be affected by factors that also have an impact on economic growth.
This paper narrows down the question to empirically estimating the causal
effect of local elections on local economic growth in Indonesia by using a
quasi-experimental research method. The first direct elections of district
leaders in Indonesia were performed in a staggered manner, and decided such
that the year of election is exogenous. Thus, growth in districts that have
had their first elections of district heads can be compared with growth in
districts that have not had a direct election, which more specifically is
performed by using a difference-in-difference approach. Our estimations
show no general effect of local elections on economic growth. The result is
robust to various robustness tests and is supported by data that show small
effects of elections on governance.
Keywords: democracy; elections; growth; Indonesia; natural experiment; (follow links to similar papers)
JEL-Codes: H11; O10; O43; (follow links to similar papers)
52 pages, May 7, 2014
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