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p11_lec09 - Democracy vs Dictatorship Besides giving...

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Democracy vs. Dictatorship Besides giving citizens the ability to regularly select/change politicians, does democracy make a difference? 1. Economic growth? 1 Which is more important: democracy or growth? Does the answer depend on the rate of growth and/or performance of democracy ? If growth tends to be more important, is democracy the means? If democracy tends to be more important, growth will help get it….
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1. Economic growth? Wealth (GDP per cap, 1985 purchasing power USD) Proportion of Countries that are Democratic, 1950-1990 Difficult to find good evidence that democracy growth. Need to disentangle from growth democracy If democracies did grow faster, it should be easy to see: Some growth democracy faster growth Need also to disentangle from other stuff: globalization, level of wealth, etc… To make theoretical arguments, we need a model of economic growth…
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Growth More productivity / efficiency Investment Economic environment A model of economic growth Just add market forces: profit motive & competition Saving Stability (no war, low inflation, etc.) Enforceable contracts Secure property rights Finance new technologies & modes of production Develop “human capital” (skills, education) Less poverty & more wealth (basic goods, luxury goods, leisure)
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Economic growth requires credible contracting Nobody wants to invest if they think they’ll lose their investment because debtors (businesses, students, etc) won’t pay back loans Need some credible legal recourse : court forces payment, or some asset could be taken in place of repayment Politics matters: the state must be enforcer of contracts , with a well- functioning legal system (no bribes, political favoritism, etc.) Poorly functioning legal system sub-maximum growth 4
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How difficult to enforce contracts? Index = # procedures + time + cost in attorney fees Better enforcement has positive correlation w/ economic development 5
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An aside: common law vs. civil law CIVIL LAW COMMON LAW Most of the world (Europe, Latin America, etc) Anglo-American
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