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Economic Resilience in Developing Countries: The Role of Democracy in the Face of External Shocks

Mohamed Ali Trabelsi and Salah Ahmed

No 1499, Working Papers from Economic Research Forum

Abstract: In this paper, we examine the role of democracy in strengthening the resilience of developing economies in the face of exogenous negative external shocks. To achieve our research objectives, we use the duration model to estimate how democracy can determine the probable duration of an economic growth spell. Examining a panel of 96 developing countries observed over the 1965-2015 period, we find that democracy is a resilience factor, insofar as it helps to support growth spells in the event of negative external shocks. One implication of this study is the role of democracy in improving living standards in developing coutries. The study may be subject to further research, and more variables that account for major shocks (such as political and civil unrest, internal conflicts, and natural disasters) can be considered. These shocks may occur during a growth period and cause very serious disruptive effects. The results show that an improvement in democracy score is associated with an increase in the expected duration of a growth spell. Another finding is that some dimensions of democratic institutions, such as political participation and egalitarian inclusion, can lead to sustainable economic growth.

Pages: 20
Date: 2021-10-20, Revised 2021-10-20
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Published by The Economic Research Forum (ERF)

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Working Paper: Economic resilience in developing countries: The role of democracy in the face of external shocks (2022) Downloads
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