Democracy and Firm Productivity: Evidence from Indonesia

Ama Abeberese, Prabhat Barnwal, Ritam Chaurey and Priya Mukherjee
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Ritam Chaurey: Johns Hopkins University
Priya Mukherjee: University of Wisconsin–Madison

The Review of Economics and Statistics, 2023, vol. 105, issue 3, 713-722

Abstract: While recent work suggests democracy does cause growth, the channels through which this effect occurs remain unclear. Exploiting quasi-random variation in the timing of district-level political regime changes induced by the collapse of President Suharto's government, we study the microlevel drivers of the democracy-growth relationship. Using Indonesian firm-level data, we find that democratization leads to an increase in firm productivity, a critical determinant of economic growth. Furthermore we find evidence of an improvement in the quality of local business regulations and the business environment for firms.

Date: 2023
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