Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1023: The Effect of Elections on Economic Growth: Results from a Natural Experiment in Indonesia

Sara Moricz and Fredrik Sjöholm ()
Additional contact information
Sara Moricz: Lund University, Postal: Department of Economics
Fredrik Sjöholm: Lund University, Postal: Department of Economics, nd Research Institute of Industrial Economics, Stockholm, Sweden

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

JEL-codes: H11; O10; O43

51 pages, May 8, 2014

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