Umeå Economic Studies,
Umeå University, Department of Economics

Abstract: This paper analyses the experience of 83 countries from the period of 1950-2004 and addresses the following question: when do democratic transitions produce (good) bad economic outcomes. Following the theoretical papers of Acemoglu et al. (2004, 2008(a)), an attempt is made to control for both de jure and de facto sides of political power. In addition, the countries with and without the experience of Military Dictatorship (MD) are analysed separately. The results imply that concentration of economic power per se produces bad economic outcomes. Besides, the data seem to contain an indication that democratisation induces additional socially wasteful investments into de facto political power. In addition, the analyses suggest that, when the army assumes political leadership, countries with low concentration of economic power demonstrate better economic performance. In terms of Acemoglu et al. (2007), this may support the idea that the institutional environment switches from a “weak” to a “strong” one. Finally, the potential trade-off between democratisation and political stability seems to be mainly relevant to the degree of severity of reoccurring economic crises in countries with MD experience.

Keywords: de facto and de jure political power; economic growth; structural breaks; Markov-switching chain; military dictatorship; political transition

JEL-codes: D72; O43; O57; P26

60 pages, January 23, 2014

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