The Unassuming Economist

Source: VoxDev

Authors of this article (2022), Baafra Abeberese, A. et al describe their study and its results as follows:

“We study how democratisation affects firm productivity — a critical micro-driver of economic growth. We do so in the context of Indonesia, which had been under the dictatorial rule of Soeharto for three decades, until the unexpected collapse of his regime in 1998. Using the exogenous timing of when each district in the country transitioned to a democracy, we estimate the causal effect of democratisation on firm productivity. We combine data on the timing of democratisation with an annual census of manufacturing firms over two decades to analyse the impact of democratisation on firms using an event study design. Our findings suggest that democratic leaders are less likely to impose socially inefficient regulations or engage in rent-seeking and, hence, enhance firm productivity.”

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Revisiting the causal effect of democracy on long-run development

In the latest blog for The Conversable Economist, author Timothy Taylor examines the merits of the statement whether the US needs a sound industrial policy to fuel economic growth like its counterparts like China or not. While the modern version of this argument states that the US needs to subsidize key industries to counterbalance China’s growing economic influence in the world, he also discusses the historical context to this backed by strong macroeconomic fundamentals. The author quotes excerpts from a report by the Peterson Institute of International Affairs:

“The World Bank’s acclaimed volume, East Asian Miracle: Economic Growth and Public Policy (Birdsall et al. 1993), while acknowledging industrial policies, emphasized sound macroeconomic policies (later labeled the “Washington Consensus”), together with superior education and land reform, as drivers of remarkable growth in Hong Kong, Japan, South Korea, Singapore, and Taiwan. A decade earlier, Chalmers Johnson (1982) had published MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975, giving outsized credit for Japan’s spectacular postwar economic growth to government support for specific firms and industries. These two volumes set the stage for prolonged debate, still underway, on the role of industrial policy in East Asian economic prosperity. Numerous academic articles and books have dissected contributing factors. This brief section merely skims the surface of a substantial literature.”

Click here to read the full blog.