Democracy, Market Liberalization, and Political Preferences

Abstract

This paper questions the conventional wisdom concerning the sequencing of political and economic reforms in developing countries. We exploit the specific situation of frontier-zones as well as the considerable regional variations in culture and economic development in the countries of Central and Eastern Europe and the former Soviet Union in order to estimate the impact of market development and democratization on subjective political preferences. Taking advantage of a new survey conducted in 2006 by the European Bank for Reconstruction and Development and the World Bank in 28 post-transition countries, we find a positive and significant effect of democracy on support for a market economy, but no effect of the impact of market liberalization on support for democracy. Our results are robust to the use of various indices of market liberalization and democracy and alternative measures of political preferences. Hence, the relativist argument according to which the demand for democracy is an endogenous by-product of market development is not supported by our data.Keywords: market and democracy, political preferences, spatial regression discontinuity, transition economies.JEL Codes: H1, H5, P2, P3, P5, O1, O12, O57. This paper has been invited for resubmission at The Review of Economics and Statistics. We thank participants in the UC Berkeley development seminar, the PSE Public Policy and Labor Market seminar, the Toulouse Development seminar, the UC Berkeley development lunch and the EBRD lunch seminar. We are grateful to Esther Duflo, Ermal Hitaj, Ethan Ligon and Gerard Roland for helpful comments and suggestions.All errors are ours. This research has benefited from the support of the CEPREMAP and the CiriacyWantrup Foundation.2

Political support in hard times: Do people care about national welfare?

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Electoral rules, forms of government and redistributive policy: Evidence from agriculture and food policies

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Synthetic ‘real socialism’: a counterfactual analysis of political and economic liberalizations

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