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Fighting Inflation in Developing Countries: Does Democracy Help? An Empirical Investigation

✍ Scribed by Abdoul' Ganiou Mijiyawa

Publisher: John Wiley and Sons
Year: 2010
Tongue: English
Weight: 684 KB
Volume: 23
Category: Article
ISSN: 0954-1748
DOI: 10.1002/jid.1671

No coin nor oath required. For personal study only.

✦ Synopsis

Using the date of independence as an instrument for democratic institutions, and data over the period 1960-2003, I find a positive and significant effect of democracy on inflation in a sample of 62 developing countries. Democracy increases inflation because democracy stimulates money creation and compromises trade liberalisation. When I exclude Latin American countries from my sample, democracy has a positive but insignificant effect on inflation. This suggests that the significant effect of democracy is due to Latin American countries experiences. Thus, my results reconcile two views: one that 'populist democracy' is a Latin American phenomenon; and the other that democracy does not necessarily induce better macroeconomic management in developing countries.

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