We study the joint dynamics of economic and political change. Predictions of the simple model that we formulate in the paper get considerable support in a panel of data on political regimes and GDP per capita for about 150 countries over 150 years. Democratic capital -- measured by a nation's historical experience with democracy and by the incidence of democracy in its neighborhood -- reduces the exit rate from democracy and raises the exit rate from autocracy. In democracies, a higher stock of democratic capital stimulates growth in an indirect way by decreasing the probability of a successful coup. Our results suggest a virtuous circle, where the accumulation of physical and democratic capital reinforce each other, promoting economic development jointly with the consolidation of democracy.
*Published:
Torsten Persson & Guido Tabellini, 2009.
"Democratic Capital: The Nexus of Political and Economic Change,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 1(2), pages 88-126, July.
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