Do Democracies Have Higher Current Account Deficits?

Antonis Adam and Sofia Tsarsitalidou

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we argue that democracies tend to run (larger)current account deficits than autocracies. Our argument is based on the different incentives faced by democratic and autocratic leaders. The main theoretical hypothesis are tested on a dataset that consists of 121 countries over the period 1980-2012, using five year averages and a fixed effects panel data model. The empirical findings suggest that autocracies run lower current account deficits than democracies. Special focus is given in the issue of endogeneity by estimating an IV Fixed Effects model, using as instruments of Democracy the share of Christian adherents in each country and also the level of democracy in neighboring countries. These results are found to be robust across alternative empirical specifications.

Keywords: Current Account; Democracy; Αutocracy (search for similar items in EconPapers)
JEL-codes: F32 H11 (search for similar items in EconPapers)
Date: 2017-01-25
New Economics Papers: this item is included in nep-opm and nep-pol
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Journal Article: Do democracies have higher current account deficits? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:76400

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